2010 Annual Report - Investor Relations Solutions

Transcription

Doing The Right Things
2010 Annual Report
Spirit AeroSystems, Inc.
Spirit AeroSystems is one
of the world’s largest
independent suppliers
of commercial airplane
assemblies and components.
Work for our largest
customers, Boeing and
Airbus, accounts for
approximately 83 percent
and 11 percent of our
revenues, respectively.
Based in Wichita, Kansas,
We build aerostructures
Spirit’s other U.S. operations
for every Boeing aircraft
are in Tulsa and McAlester,
currently in production,
Oklahoma, and Kinston,
including the majority of the
North Carolina. In Europe,
airframe for the Boeing 737,
Spirit has manufacturing
and the fully stuffed forward
and assembly operations
fuselage for the 787. For
in Prestwick, Scotland,
Airbus, we are responsible
and is scheduled to begin
for wing structures for the
operations in Saint-Nazaire,
A320, A330, and A380,
France, in 2011. In Asia,
and a significant portion of
Spirit has operations in
the A350 XWB, including
Subang, Malaysia.
the center fuselage and
certain wing structures.
In addition, the company
Thanks to exclusive, longprovides Aftermarket
Spirit AeroSystems celebrated its 5th anniversary as a company in June 2010.
customer support services –
term agreements with
including spare parts, maintenance/repair/overhaul,
these customers, we are assured of continuing work
and fleet support services – in North America, Europe,
packages while we develop new programs.
and Asia.
Other customers include Bombardier, Gulfstream,
Spirit is organized into three principal reporting
Israeli Aerospace Industries, Mitsubishi, Rolls-Royce,
segments:
Sikorsky, the U.S. government, and airlines including
American Airlines, Cathay-Pacific, Continental Airlines,
n Fuselage Systems, for the design and manufacture
and Southwest Airlines.
of forward, mid, and rear fuselage assemblies
and components
Spirit was formed in 2005 through acquisition of
The Boeing Company’s commercial aerostructures
n Propulsion Systems, for the design and
manufacturing operations in Kansas and Oklahoma by
manufacture of nacelles, struts and pylons, and
an investor group led by Onex Corp. Through strategic
engine structural components
acquisitions, partnerships, and joint ventures, the
n Wing Systems, for the design and manufacture
company now has skills and ongoing services wellof wing components and structures, and flight
positioned to meet the needs of customers, both OEMs
control surfaces
and airlines, wherever they are throughout the world.
Financial Highlights
FOR THE YEAR (in millions, except per share data)
2010
2009
Net sales
$ 4,172.4 $ 4,078.5
Selling, general and administrative
$
156.0
$
137.1
Research and development
$
51.5
$
56.7
Operating Income $
357.0
$
303.3
Net Income
$
218.9
$
191.7
Earnings per share, diluted
$
1.55
$
Average diluted shares outstanding
141.0
Cash flows from operations
125.1
$
1.37
139.8
$
(13.9)
AT YEAR-END
Total assets
$ 5,102.0
$ 4,473.8
Total debt
$ 1,196.8
$
Total equity
$ 1,810.9
$ 1,573.8
$4,079
$4,172
2010
$3,772
2008
2009
$3,861
2007
$1,811
$3,208
$1,298
2008
$1,574
$1,267
2006
2010
2009
2006
$859
2007
$1,197
2010
$588
2008
$894
$595
2007
2009
$618
2006
2010
2009
2008
2007
2006
$5,102
(in millions)
$4,474
Net Sales
(in millions)
$3,760
Total Equity
(in millions)
$3,340
Total Debt
(in millions)
$2,722
Total Assets
893.8
1
Letter to Shareholders
Doing The Right Things
“Today, we begin a new era in our rich
heritage of aviation history…uniquely
positioned to be the company of choice
for commercial, general, regional,
and military aircraft, and aerospace
manufacturers throughout the world…
This is the right team. This is the right
place. This is the right time.”
– Jeff Turner, June 17, 2005
Jeff Turner, President and Chief Executive Officer
A Skilled Team
A skilled core team is essential to our success. One of our
goals during the tough economy has been to maintain a
2
957
1,029
978
963
2010
2009
2008
In 2010, we reached
agreement on new longterm labor contracts with
the IAM, UAW, and IBEW.
These unprecedented 10year contracts include new
pay-for-performance elements and represent a new,
groundbreaking model of partnership and collaboration
between the company and our represented employee
2007
Our efforts to keep our business healthy and our team
for the future intact are paying off. Products in our core
business are ramping up in 2011. Many of our development
programs are entering production. And we are ready.
Now, with announced rate increases on core business for
Boeing and Airbus, we have the talent ready to take on the
faster pace. In addition, with six development programs for
several customers now in
test stages and moving
Ship Set Deliveries
toward the initial phases
of production, we remain
focused on meeting our
customer requirements.
761
That’s not to say we haven’t been affected by the
challenges of the world economy or been tested by shortterm trials; we have. But we’ve stayed true to our mission
to maintain our core business, win new work, and diversify
where and how it makes business sense. As a result,
we’ve grown from revenues of $3.2 billion in 2006 to
almost $4. 2 billion in 2010. Our long-term relationships
with key customers and our $28.3 billion backlog give us
a firm foundation on which to build and grow.
stable labor force. We’ve been creative in avoiding layoffs
when demand for our products has fallen, choosing
shortened work weeks rather than furloughing employees.
This plan helped us to be ready to resume production rates
once demand returned.
2006
Spirit AeroSystems marked its five-year anniversary in
2010, and we believe the words we used to step out as an
independent company are still true today. We’ve worked
hard to build and maintain the right team, to establish
ourselves in the right places, and to be prepared to meet
the needs of both the moment and the future.
Fuselage Systems Segment
Spirit Responsibility
Airbus A350 XWB
Boeing 737
Boeing P-8A
Boeing 747
Boeing 767
(Top) Sealing and joining the window belt lap on a Boeing 737 fuselage is performed from a rainbow ladder. (Above Left) Workers complete final preparations for
shipping a Boeing 737-700C (combi/convertible) unit. (Above Right) A Brotje automated fastening machine locates, drills, and installs fasteners for structural
components in the Boeing 787 forward fuselage.
Boeing 777
Spirit has decades of experience in creating large, contoured metal and composite aerospace assemblies for some
of the largest and most sophisticated airplanes ever built. Current customers for our fuselage products are Boeing,
Airbus, and Sikorsky.
Spirit designs and builds the fuselage for the Boeing 737; the forward cab assembly for the Boeing 747, 767, and
777; and the composite contoured one-piece barrel forward section for the Boeing 787. Boeing fuselage work is
performed in Wichita, Kansas.
Boeing 787
For Airbus, Spirit is responsible for design/build of the composite center section of the A350 XWB (extra wide
body), being built in Kinston, North Carolina.
Our work for Sikorsky includes the composite cockpit and cabin sections for the developmental test unit of the
CH-53K helicopter, designed and manufactured in Wichita, as well as the join to the supplied aft section.
Sikorsky CH-53K
2010 accomplishments included:
n
Rolled out first fuselage for the Sikorsky CH-53K helicopter
n
Delivered unit 3,500 of Boeing 737 Next Generation fuselage
n
Delivered unit 31 of B787 forward fuselage
n
Delivered unit 23 of B747-8 forward fuselage
n
Delivered first unit for the B747-8 Intercontinental passenger jet, the first derivative model of the B747-8
n
Opened new manufacturing facility in Kinston, North Carolina; completed construction on facility in
Saint-Nazaire, France
3
Propulsion Systems Segment
Boeing 737
Boeing 747
Boeing 767
Boeing 777
Boeing 787
(Top) Spirit assembles the Rolls-Royce BR725 thrust reverser in Wichita. (Above) The
Rolls-Royce BR725 undergoes quality checks. (Right) Functional testing is performed
on a Boeing 777 thrust reverser.
Bombardier CSeries
Gulfstream G650
Mitsubishi MRJ
One of Spirit’s most readily recognizable products is the under-wing component package that includes the nacelle,
thrust reverser, and pylon configuration. We build this package for every Boeing 737, 747, 767, and 777 commercial
airplane. For the Boeing 787 we build the pylon, and on the Boeing 747-8 we build the pylon, inlet, and fan cowl.
We hold the engineering and certification authority on all the commercial airplane under-wing components we build
for Boeing aircraft.
Our expertise in the design, fabrication, and assembly of these complex, multi-contoured, lightweight, acousticallytreated components makes us a prime source of product development for future commercial, defense, and general
aviation engine interface structural packages.
With the company’s entry into the regional and business jet markets, we are responsible for the design and build of
pylons for the Mitsubishi Regional Jet and the Bombardier CSeries Jet, and the nacelle package for the Rolls-Royce
BR725 engine which powers the Gulfstream G650 business jet.
Spirit’s Propulsion Systems Segment provides the thrust reversers sold and installed by our Aftermarket business.
Service is provided around the world.
4
n
Delivered unit 3,500 of Boeing 737 Next Generation pylon and thrust reverser
n
Delivered unit 36 of B787 engine pylon
n
Delivered unit 19 of B747-8 pylon ship set
groups. We are confident this will
help to further the stability of our
labor force and provide added flexibility
as the company continues to grow
and prosper.
Revenues by Major
Customer
A Global Footprint, Global Services
83%
Over our first five years we’ve added
to our original operations in Wichita,
Kansas, and Tulsa and McAlester,
Boeing
Oklahoma. Our first acquisition,
completed in April 2006, from BAE
Systems Aerostructures, established Spirit operations and
office facilities in Prestwick, Scotland, and Samlesbury,
England. Since then, we’ve continued to grow globally
and now operate facilities on three continents as well as
joint ventures and partnerships in Europe and Asia,
including a newly certified MRO repair station in China.
In addition, we have MRO repair stations in the U.S. and
Scotland, effectively providing airline customers worldwide
with maintenance, repair, and overhaul services. We
strategically position our operations to add efficiency to
our processes while providing value to our customers.
Our 2010 milestones demonstrate this:
In July we officially opened our new 585,000 square
foot manufacturing facility in Kinston, North Carolina.
Kinston employees design and build the composite
center fuselage upper and lower shells and front wing
spar for the Airbus A350 XWB aircraft using state-ofthe-art technology and processes. The facility was built
in proximity to a rail spur leading to a seaport location,
where the fuselage sections will be shipped to France
for assembly.
n
11%
6%
well. At divestiture in June 2005, we
provided spares and services to many
aircraft operators but through only one
customer. By the end of 2005 we had
six direct customers and five years
later, in December 2010, we had over
500. Throughout 2010 we have grown
our Aftermarket business:
Distribution of spares to the
Americas is managed at present
from sales offices in Wichita, Kansas,
Phoenix, Arizona, and Dallas, Texas, with a planned office
in Brazil scheduled to open in the first quarter of 2011.
Sales offices in Singapore, Malaysia, and Shanghai,
China, manage distribution in Asia. A new sales office in
Shannon, Ireland,
opened in
September 2010,
to service customers
in Europe, the Middle
East, and Africa.
n
Airbus
All Other
In 2010 we added
to our growing list
of exclusive
agreements to be
a preferred supplier
Spirit provides spares and repair services worldwide.
for Aftermarket
services and sales, including deals with a number of
carriers around the world.
n
A display of Spirit’s global footprint is on pages 10-11.
A Steady Progression Into The Future
A sure sign that we’re doing the right things is our
customers’ confidence in what we do. In 2010 that
confidence was confirmed when
Boeing named Spirit to its NewGen
Revenues by Business
Tanker Supplier Team. Boeing,
Segment
our largest customer, won the
KC-46A contract to design and
build the U.S. Air Force’s next line
of tanker aircraft. Spirit will build
the Boeing tanker’s forward
49%
25%
<1%
fuselage section and under-wing
26%
package in Wichita, Kansas,
and the fixed leading edge in
Fuselage Systems
Wing Systems
Prestwick, Scotland.
Propulsion Systems
All Other
Spirit shipped the first leading edge outer spar component
to Prestwick, Scotland, in December 2010, following two
years of design work.
Also in July, Spirit took possession
of its new facility in Saint-Nazaire,
France, built to receive the center
fuselage sections of the Airbus A350
XWB aircraft from Kinston, North
Carolina, and assemble them into
composite barrels before delivery
to Airbus.
n
Our global footprint has expanded
through our Aftermarket services as
5
Spirit’s work on the Boeing 787 program continues.
We build the 787’s composite forward fuselage, engine
pylons, and wing leading edge components. In December,
Boeing and Spirit reached an agreement covering the
costs of configuration and engineering changes and
program delays that will be finalized in 2011. Spirit will
continue to work with Boeing to improve the 787 program
and has dedicated supplier-customer design teams
focused on reducing costs on the program.
Significant milestones
were reached on
several programs
that have moved or
are moving out of
development and
into early phases of
production, clearly a
move into the future.
Boeing’s new widebody freighter 747-8
made its initial flight
in February 2010.
n
In June, Spirit
completed the
forward fuselage
for the B747-8
Intercontinental
Bob Johnson, Chairman of the Board
passenger jet,
the first derivative model of the B747-8.
n
In December, Spirit’s new facility in Kinston, North
Carolina, shipped the first production leading edge
outer spar component for the Airbus A350 XWB
program to Spirit’s plant in Prestwick, Scotland,
where it is being integrated
into the fixed leading edge
before delivery to Airbus’
plant in Broughton, Wales,
for integration into the
wing box.
n
Also in December, Spirit
rolled out the Sikorsky
CH-53K helicopter fuselage
being delivered to support
assembly of the first
developmental test vehicle.
n
6
The fuselage assembly, which includes composite cockpit
and cabin sections designed and built by Spirit, was joined
to a supplier-provided aft transition empennage section.
Our contract with Sikorsky is to design, fabricate, procure,
and build seven units of the cockpit/cabin sections of
the helicopter.
Spirit’s P-8I team
has begun
production for the
Indian Navy’s first
long-range maritime
reconnaissance and
anti-submarine
warfare aircraft.
The P-8I, based on
the Boeing NextThe first Sikorsky CH-53K helicopter fuselage was
Generation 737
rolled out in December.
commercial airplane,
is a variant of the P-8A Poseidon that Boeing is
developing for the U.S. Navy.
n
Our work on Gulfstream programs continued in 2010,
with support of the test phases for the G250 and G650,
and of Rolls-Royce’s testing of the BR725 engine, which
will power the G650.
n
Our core business is founded in solid long-term programs
with Boeing and Airbus for large commercial aerostructures
and components. Our customers’ confidence is manifested
in new work and production rate increases. And it provides
us a firm footing as we move programs out of development
and into production.
Financial Performance
Spirit’s progress in several areas supported our financial
performance for the year. We delivered over 950 core
end items. We progressed
on our development programs
with the opening of our new
Kinston, North Carolina,
and Saint-Nazaire, France,
sites. We delivered new
test hardware on programs
such as the A350 XWB
and the Sikorsky CH-53K.
We added stability for our
business with long-term
The first forward fuselage for the 747-8 Intercontinental was completed in June.
agreements with our labor
Wing Systems Segment
Airbus A320
Airbus A350 XWB
Airbus A380
Boeing 737
Boeing 747
(Top) An automatic robotic system drills and fastens metallic skin panels to the
fixed leading edges of an Airbus A320. (Left) Workers perform spar installation for
the Gulfstream G250 wing. (Above) A G650 wing substructure is made ready for
skin installation.
Boeing 767
Spirit develops and produces wing systems, structures, and components for a wide range of aircraft, from the very
large Airbus A380 with its 261-foot-10-inch wingspan, to the very small Gulfstream G250 with its 63-foot wingspan.
Our Tulsa factory supplies wing components for the Boeing 737, 747, 777, and 787 models as well as complete
wings for Gulfstream G250 and G650 models. Composite wing subassembly work is performed in Subang,
Malaysia. And our new facility in Kinston, North Carolina, builds the composite front spar for the Airbus A350 XWB.
Boeing 777
Spirit AeroSystems (Europe) Limited, headquartered in Prestwick, Scotland, is one of the largest wing airframe
suppliers to Airbus – with major content on the the Airbus A320 family, as well as wing structures for the Airbus
A380 and the new A350 XWB. Spirit Europe also supplies fixed leading edges for the Boeing 767 and 777.
n
Delivered first leading edge outer spar component of Airbus A350 XWB
n
Delivered unit 4,600 of the A320 wing components
n
Achieved 5,000th composite subassembly delivery milestone at Spirit Malaysia
n
Delivered unit 3,500 of Boeing 737 Next Generation slats and flaps
n
Delivered unit 23 of B747-8 fixed leading edge wing section
n
Supported Gulfstream G250 and G650 test phases
Boeing 787
Gulfstream G250
Gulfstream G650
7
(in millions)
Spirit’s backlog at the end of the fourth quarter of 2010
was $28.3 billion.
Cash balances at the end of the year were $482 million,
up $113 million from a year ago, largely reflecting the
proceeds generated from the issuance of the $300 million
senior unsecured notes in November of 2010, and receipt
of non-recurring contract payments associated with our
development
programs, partially
2010 Business Segment
offset by continued
Operating Income
investment in our
new programs.
Looking forward,
Spirit is financially
55%
strong and in a
26%
<1%
19%
solid competitive
position. We are
Fuselage Systems
Wing Systems
implementing
Propulsion Systems
All Other
plans to expand
capacity for our
core business. With a strong growth outlook and a focus
on our core value of performance excellence, we are
positioned to meet our goal of long-term value creation.
What’s Next
Our core businesses continue to perform well and the
market for large commercial airplanes remains strong.
We are making plans to increase core business production
rates while we continue to implement our long-term
diversification strategy by developing new products.
8
$52
$57
2010
$48
Our team’s development activities are
progressing, as we continue to navigate
through the near-term challenges
remaining in the test phases. Over the
longer term, we look forward to the
contributions we expect these new
programs to provide for Spirit.
As for the long-term outlook of the
commercial aerospace market, demand
for our core products continues to
strengthen. With a substantial backlog
supporting Spirit’s future, we are confident
that we have the right team in place, designing and
producing the right products, targeting the right markets,
and making the right investments to ensure the longterm value that our customers, shareholders, and
employees expect.
2009
Full-year net income increased 14 percent
to $219 million, or $1.55 per fully diluted
share, compared to $192 million, or $1.37 per fully diluted
share in 2009.
2008
$52
2007
2006
Revenues for the full year 2010 reached
nearly $4.2 billion, up 2 percent from
full year 2009. Operating income for the
full year increased to $357 million, up
18 percent from $303 million in 2009.
Operating margins were at 8.6 percent for
the year, compared to 7.4 percent for 2009.
R&D Spending
$105
partners. We established a path forward
with Boeing on the 787 program.
Chairman of the Board
President and Chief Executive Officer
March 24, 2011
Corporate Citizenship
Just as we partner with our customers to meet their requirements, Spirit and its employees partner with our communities to help improve their quality of life.
Meeting Human Needs
United Way – Spirit and its employees gave $2.35 million to United Way
of the Plains in south-central Kansas in 2010. The employee-run
Good Neighbor Fund gave $1.95 million and the company gave
$400,000. In Tulsa, a total of $75,000 was given to United Way,
$45,000 from employees and $30,000 from the company.
Feeding the Hungry – In Wichita, the Spirit 2010 food drive provided
$152,519 to the Kansas Food Bank. The Good Neighbor Fund
provided $75,000, direct donations from employees totaled $67,519,
and Spirit corporate contributed $10,000. Kinston, North Carolina,
employees provided money and non-perishable items to Mary’s
Kitchen, a local food bank.
School Supplies – Spirit partners with the Salvation Army to collect
school supplies for students in Wichita and surrounding communities.
In 2010, requests for aid totaled over 8,000, and Spirit employees
provided a significant portion, with donations of over 1,100 backpacks,
enough supplies for over 1,600 students, and $44,736 in monetary
gifts. In North Carolina, employees gathered supplies to assist
students with filled book bags.
Holiday Aid – Through programs such as Adopt-a-Family and Toys for
Tots, Spirit employees demonstrate their generosity during the holiday
season. Kansas and North Carolina employees served a combined
100 families (a total of 485 people, including 296 children) through
Adopt-a-Family programs. In Tulsa, employees raised nearly
$19,200 to support Toys for Tots in 2010.
Spirit Europe
employees enjoy
the four-day Prestwick
Cycle Challenge, a
fundraiser for cancer services.
Help for the Ailing – The McAlester, Oklahoma, Good Neighbor Fund
donated $1,500 to the Pittsburg County (Oklahoma) American
Cancer Society to assist in providing services to local cancer patients,
including prostheses, nutritional supplements, and the Camp OK
Corral for children with cancer.
Environmental Education
Salmon in the Classroom – Employees in Prestwick, Scotland, work with
the Ayrshire Rivers Trust and two local primary schools in returning
wild salmon to the rivers in Ayrshire. School children learn about river
wildlife, life cycles, and environmental issues.
Walk With Wildlife – Spirit sponsored the annual Walk With Wildlife
program in June 2010 in partnership with the Great Plains Nature
Center. The program provides a close-up view of Kansas wildlife
and wildlife habitat, and meets the company’s goal to support
environmental education. This year 2,075 visitors participated in
activities, assisted by over 100 Spirit volunteers and family members.
Focused Support
Team Spirit – Spirit Europe employees identify a cause and raise
funds through a variety of activities. In 2010 they completed a
two-year partnership with Macmillan Cancer Support with a final
tally of £50,000. These funds have been used for the care of people
living with cancer and support for their families. Partners for the
2010-2012 fundraising effort are Ayrshire Cancer Support and
Cancer Help Preston.
Spirit Worldwide
Spirit AeroSystems has become a global enterprise
by growing strategically through acquisition,
joint ventures, and partnerships, and through
development of new facilities from the ground up.
We operate our sites and form partnerships where
they make best business sense to meet resource
requirements for skills, materials, and shipping
needs, and place services where they can meet
customer requirements quickly.
Kinston, North Carolina
USA
Wichita, Kansas
Company headquarters
15.3 million square feet of operations
10,150 employees
Fuselage assemblies and components
for all current Boeing programs
(737, 747, 767, 777, and 787)
Fuselage cabin for Sikorsky CH-53K
helicopter
Nacelle production for Boeing 737,
747, 767, 777, and 787, and the
Rolls-Royce BR725 Engine
Strut/pylon production for Boeing
737, 747, 767, 777, and 787, and the
Bombardier CSeries and Mitsubishi
Regional Jet
Headquarters for Aftermarket
Customer Support
FAA- and EASA-certified MRO
Repair Station
10
585,000 square feet of operations
163 employees
Composite center fuselage panels
of Airbus A350 XWB
Composite leading edge spar
components of Airbus A350 XWB
Tulsa and McAlester, Oklahoma
2 million square feet of operations
2,280 employees
Composite and metallic wing
components for the Boeing 737NG,
747-8, 777, and 787 product lines
Fully integrated wing for the
Gulfstream G250 and the G650
aircraft
E-3 AWACS IFF and radar radomes,
engine cowls, and rudders
RUSSIA
UNITED KINGDOM
Moscow
Prestwick, Scotland, and
Preston, England
Spirit-Progresstech LLC (US joint
venture with Progresstech Ltd)
registered branch office
Aerospace engineering support
services
1.1 million square feet of operations
919 employees
Wing components for the Boeing
767 and 777
Structural wing components for the
Airbus A320, A330, A380, and A350
XWB programs
Oversight of operations in Malaysia
EASA-certified MRO Repair Station,
FAA certification in process
Offices moved to Preston, England,
from Samlesbury at the beginning
of 2011
CHINA
Jinjiang
Taikoo-Spirit AeroSystems
Composite Co. Ltd.
Joint venture with HAECO and
TAECO
Opened November 2009
FAA- and CAAC-certified MRO
Repair Station for aircraft operators
across the Asia-Pacific region
Expansion planned to accommodate
work on Airbus A350 XWB
FRANCE
Saint-Nazaire
62,000 square feet of operations
Construction completed in July 2010
Assembly of composite center fuselage
panels of Airbus A350 XWB before
delivery to Airbus
MALAYSIA
Subang
244,000 square feet
410 employees
Composite subassemblies
for Airbus single-aisle aircraft
NOTE:
Square feet includes owned and leased properties.
Employment numbers are as of year-end 2010.
11
Board of Directors
Charles L. Chadwell
Paul E. Fulchino
Ronald T. Kadish
Jeffrey L. Turner
VP/GM (Retired), GE Commercial
Engine Operations
Director, PAR Systems & Parkway Products
Director, BE Aerospace
President, Chairman and CEO (retired),
Aviall, Inc.
SVP, Booz Allen Hamilton
Lt. General (Retired) USAF
President and CEO, Spirit AeroSystems, Inc.
Richard A. Gephardt
Tawfiq Popatia
President and CEO, Gephardt Group
(U.S. Congressman, MO – retired)
Director, Onex Corporation
President and CEO, Dynamex, Inc.
President and CEO (Retired), Yellow
Transportation
Robert D. Johnson
VP and Chief Financial Officer (Retired),
United Defense Industries, Inc.
Ivor J. Evans
Operating Partner, Thayer Hidden Creek
Chairman, Spirit AeroSystems, Inc.
CEO (Retired), Dubai Aerospace Enterprise
Chairman Emeritus, Honeywell Aerospace
Francis Raborn
James L. Welch
Spirit Executive Officers
Jeffrey L. Turner
H. David Walker
Gloria Farha Flentje
Michael G. King
President and Chief Executive Officer
Senior Vice President
Chief Technology Officer and
Business Development
Corporate Administration and
Human Resources
Senior Vice President/General Manager
Fuselage Systems
Michelle Russell
Samantha J. “Sam” Marnick
General Counsel and Secretary
Senior Vice President (Incumbent)
Corporate Administration and
Human Resources
Propulsion Systems
Philip Anderson
Chief Financial Officer
Richard “Buck” Buchanan
Chief Operations Officer
12
John Pilla
John Lewelling
Wing Systems
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-K
(Mark One)
¥
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
n
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 001-33160
Spirit AeroSystems Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
20-2436320
(State of Incorporation)
(I.R.S. Employer
Identification Number)
3801 South Oliver
Wichita, Kansas 67210
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code:
(316) 526-9000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Class A Common Stock, $0.01 par value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¥
No n
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes n
No ¥
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ¥
No n
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes ¥
No n
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ¥
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer ¥
Accelerated filer n
Non-accelerated filer n
(Do not check if a smaller reporting company)
Smaller reporting company n
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes n
No ¥
The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing price of the class A common
stock on July 1, 2010, as reported on the New York Stock Exchange was approximately $2,022,363,097.
As of February 16, 2011, the registrant had outstanding 107,376,743 shares of class A common stock, $0.01 par value per share, and
34,781,526 shares of class B common stock, $0.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the 2011 Annual Meeting of Stockholders to be filed not later than 120 days after the end of
the fiscal year covered by this Report are incorporated herein by reference in Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
Page
Item
Item
Item
Item
Item
Item
1.
1A.
1B.
2.
3.
4.
PART I
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . .
[Removed and Reserved] . . . . . . . . . . . . . . . . . .
Executive Officers of the Registrant . . . . . . . . . .
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3
22
37
38
39
41
41
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43
45
47
67
70
135
135
135
PART III
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
136
136
136
PART IV
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II — Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
137
142
II-1
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
i
136
136
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains “forward-looking statements” that may involve many risks and uncertainties.
Forward-looking statements reflect our current expectations or forecasts of future events. Forward-looking
statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “should,”
“expect,” “anticipate,” “intend,” “estimate,” “believe,” “project,” “continue,” “plan,” “forecast,” or other similar
words, or the negative thereof, unless the context requires otherwise. These statements reflect management’s
current views with respect to future events and are subject to risks and uncertainties, both known and unknown. Our
actual results may vary materially from those anticipated in forward-looking statements. We caution investors not to
place undue reliance on any forward-looking statements.
Important factors that could cause actual results to differ materially from those reflected in such forwardlooking statements and that should be considered in evaluating our outlook include, but are not limited to, the
following:
• our ability to continue to grow our business and execute our growth strategy, including the timing and
execution of new programs;
• our ability to perform our obligations and manage costs related to our new commercial and business aircraft
development programs and the related recurring production;
• potential reduction in the build rates of certain Boeing aircraft including, but not limited to, the B737
program, the B747 program, the B767 program, the B777 program and the B787 program, and build rates of
the Airbus A320, A350 and A380 programs, which could be negatively impacted by continuing weakness in
the global economy and economic challenges facing commercial airlines, and by a lack of business and
consumer confidence and the impact of continuing instability in the global financial and credit markets,
including, but not limited to, sovereign debt concerns in Europe;
• our ability to reach a final settlement agreement with Boeing related to non-recurring and recurring costs on
the B787 program;
• declining business jet manufacturing rates and customer cancellations or deferrals as a result of the
weakened global economy;
• the success and timely execution of key milestones such as certification and delivery of Boeing’s new B787
and Airbus’ new A350 XWB (Xtra Wide-Body) aircraft programs, including receipt of necessary regulatory
approvals and customer adherence to their announced schedules;
• our ability to enter into supply arrangements with additional customers and the ability of all parties to satisfy
their performance requirements under existing supply contracts with Boeing and Airbus, our two major
customers, and other customers and the risk of nonpayment by such customers;
• any adverse impact on Boeing’s and Airbus’ production of aircraft resulting from cancellations, deferrals or
reduced orders by their customers or from labor disputes or acts of terrorism;
• any adverse impact on the demand for air travel or our operations from the outbreak of diseases or epidemic
or pandemic outbreaks;
• returns on pension plan assets and the impact of future discount rate changes on pension obligations;
• our leverage, including variable rate debt, and our ability to borrow additional funds or refinance debt;
• competition from original equipment manufacturers and other aerostructures suppliers;
• the effect of governmental laws, such as U.S. export control laws, the Foreign Corrupt Practices Act,
environmental laws and agency regulations, both in the U.S. and abroad;
• the cost and availability of raw materials and purchased components;
• our ability to successfully extend or renegotiate our primary collective bargaining contracts with our labor
unions;
1
• our ability to recruit and retain highly skilled employees and our relationships with the unions representing
many of our employees;
• spending by the U.S. and other governments on defense;
• the possibility that our cash flows and borrowing facilities may not be adequate for our additional capital
needs or for payment of interest on and principal of our indebtedness;
• our exposure under our existing senior secured revolving credit facility to higher interest payments should
interest rates increase substantially;
• the effectiveness of our interest and foreign currency hedging programs;
• the outcome or impact of ongoing or future litigation and regulatory actions; and
• our exposure to potential product liability and warranty claims.
These factors are not exhaustive and it is not possible for us to predict all factors that could cause actual results
to differ materially from those reflected in our forward-looking statements. These factors speak only as of the date
hereof, and new factors may emerge or changes to the foregoing factors may occur that could impact our business.
As with any projection or forecast, these statements are inherently susceptible to uncertainty and changes in
circumstances. Except to the extent required by law, we undertake no obligation to, and expressly disclaim any
obligation to, publicly update or revise any forward-looking statements, whether as a result of new information,
future events or otherwise. You should review carefully the sections captioned “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report for a more
complete discussion of these and other factors that may affect our business.
2
PART I
Item 1. Business
Our Company
Unless the context otherwise indicates or requires, as used in this Annual Report, references to “we,” “us,”
“our” or the “Company” refer to Spirit AeroSystems Holdings, Inc., its subsidiaries and predecessors. References to
“Spirit” refer only to our subsidiary, Spirit AeroSystems, Inc., and references to “Spirit Holdings” or “Holdings”
refer only to Spirit AeroSystems Holdings, Inc. References to “Boeing” refer to The Boeing Company and
references to “Airbus” refer to Airbus S.A.S., a division of European Aeronautic Defense & Space NV (“Airbus”).
We are one of the largest independent non-OEM (original equipment manufacturer) aircraft parts designers
and manufacturers of commercial aerostructures in the world, based on annual revenues, as well as the largest
independent supplier of aerostructures to Boeing. In addition, we are one of the largest independent suppliers of
aerostructures to Airbus. Boeing and Airbus are the two largest aircraft OEMs in the world. Aerostructures are
structural components such as fuselages, propulsion systems and wing systems for commercial and military aircraft.
For the twelve months ended December 31, 2010, we generated net revenues of $4,172.4 million, and had net
income of $218.9 million.
Spirit Holdings was formed in February 2005 as a holding company for Spirit. Spirit’s operations commenced
on June 17, 2005, following the acquisition by an investor group led by Onex Partners LP and Onex Corporation
(“Onex”), of Boeing’s commercial aerostructures manufacturing operations in Wichita, Kansas and Tulsa and
McAlester, Oklahoma, referred to in this Report as “Boeing Wichita.” The acquisition of Boeing Wichita is referred
to in this Report as the “Boeing Acquisition.” Although Spirit began operations as a stand-alone company in 2005,
its predecessor, Boeing Wichita (the“Predecessor”), had 75 years of operating history and expertise in the
commercial and military aerostructures industry. Spirit Holdings, Spirit’s parent company, has had publicly traded
shares on the New York Stock Exchange under the ticker “SPR” since November 2006. Onex continues to hold
approximately 93% of the class B shares, which represents approximately 74% of total Spirit Holdings stockholder
voting power.
On April 1, 2006, we became a supplier to Airbus through our acquisition of the aerostructures division of BAE
Systems (Operations) Limited, referred to in this Report as “BAE Systems.” The acquired division of BAE Systems
is referred to as “BAE Aerostructures,” and the acquisition of BAE Aerostructures is referred to as the “BAE
Acquisition.”
We manufacture aerostructures for every Boeing commercial aircraft currently in production, including the
majority of the airframe content for the Boeing B737, the most popular major commercial aircraft in history. As a
result of our unique capabilities both in process design and composite materials, we were awarded a contract that
makes us the largest aerostructures content supplier on the Boeing B787, Boeing’s next generation twin aisle
aircraft. In addition, we are one of the largest content suppliers of wing systems for the Airbus A320 family, and we
are a significant supplier for the Airbus A380, and will be a significant supplier for the new Airbus A350 XWB after
the development stage of the program. Sales related to the large commercial aircraft market, some of which may be
used in military applications, represented approximately 94% of our net revenues for the twelve-month period
ended December 31, 2010.
We derive our revenues primarily through long-term supply agreements with Boeing and Airbus. For the
twelve months ended December 31, 2010, approximately 83% and 11% of our net revenues were generated from
sales to Boeing and Airbus, respectively. We are currently the sole-source supplier of 96% of the products we sell to
Boeing and Airbus, as measured by the dollar value of products sold. We are a critical partner to our customers due
to the broad range of products we currently supply to them and our leading design and manufacturing capabilities
using both metallic and composite materials. Under our supply agreements with Boeing and Airbus, we supply
products for the life of the aircraft program (other than the A350 XWB and A380), including commercial derivative
models. For the A350 XWB and A380, we have long-term requirements contracts with Airbus that cover a fixed
number of product units at established prices.
3
Our History
In December 2004 and February 2005, an investor group led by Onex formed Spirit and Spirit Holdings,
respectively, for the purpose of acquiring Boeing Wichita. The Boeing Acquisition was completed on June 16, 2005.
Prior to the acquisition, Boeing Wichita functioned as an internal supplier of parts and assemblies for Boeing’s
airplane programs and had very few sales to third parties.
In connection with the Boeing Acquisition, we entered into a long-term supply agreement under which we are
Boeing’s exclusive supplier for substantially all of the products and services provided by Boeing Wichita to Boeing
prior to the Boeing Acquisition. The supply agreement is a requirements contract covering certain products such as
fuselages, struts/pylons and wing components for Boeing B737, B747, B767 and B777 commercial aircraft
programs for the life of these programs, including any commercial derivative models. Pricing for existing products
on in-production models is contractually set through May 2013, with average prices decreasing at higher volume
levels and increasing at lower volume levels. We also entered into a long-term supply agreement for Boeing’s new
B787 aircraft covering the life of this aircraft program, including commercial derivatives. Under this contract we are
Boeing’s exclusive supplier for the forward fuselage, fixed and moveable leading wing edges and engine pylons for
the B787. Pricing for the initial configuration of the B787-8 model is generally set through 2021, with prices
decreasing as cumulative production volume levels are achieved. Prices are subject to adjustment for abnormal
inflation (above a specified level in any year) and for certain production, schedule and other specific changes,
including design changes from the contract configuration baseline. We have negotiated with Boeing an amendment
to the B787 Supply Agreement on work statement and pricing for changes relating to future commercial derivatives,
such as the B787-9.
On April 1, 2006, through our wholly-owned subsidiary, Spirit Europe, we acquired BAE Aerostructures.
Spirit Europe manufactures leading and trailing wing edges and other wing components for commercial aircraft
programs for Airbus and Boeing. The BAE Acquisition provides us with a foundation to increase future sales to
Airbus, as Spirit Europe is a key supplier of wing and flight control surfaces for the A320 platform, Airbus’ core
single-aisle program, and of wing components for the A380 platform, one of Airbus’ most important new programs
and the world’s largest commercial passenger aircraft. In July 2008, Spirit Europe was awarded a contract with
Airbus to design and assemble a major wing structure for the A350 XWB program. Under our supply agreements
with Airbus, we supply most of our products for the life of the aircraft program (other than the A350 XWB and
A380), including commercial derivative models, with pricing determined through 2015. For the A380 and A350
XWB, we have long-term requirements contracts with Airbus that cover a fixed number of units.
In November 2006, we issued and sold 10,416,667 shares of our class A common stock and certain selling
stockholders sold 52,929,167 shares of our class A common stock at a price of $26.00 per share in our initial public
offering. In May 2007, certain selling stockholders sold 34,340,484 shares of our class A common stock at a price of
$33.50 per share in a secondary offering of our class A common stock.
Our Relationship with Boeing
Supply Agreement with Boeing for B737, B747, B767 and B777 Platforms
Overview. In connection with the Boeing Acquisition, Spirit entered into long-term supply agreements under
which we are Boeing’s exclusive supplier for substantially all of the products and services provided by Boeing
Wichita to Boeing prior to the closing of the Boeing Acquisition. The main supply contract is primarily comprised
of two separate agreements: (1) the Special Business Provisions, or Sustaining SBP, which sets forth the specific
terms of the supply arrangement with regard to Boeing’s B737, B747, B767 and B777 aircraft and (2) the General
Terms Agreement, or GTA, which sets forth other general contractual provisions relating to our various supply
arrangements with Boeing, including provisions relating to termination, events of default, assignment, ordering
procedures, inspections and quality controls. The summary below describes provisions contained in both the
Sustaining SBP and the GTA as both agreements govern the main supply arrangement. We refer to the Sustaining
SBP, the GTA and any related purchase order or contract collectively as the “Supply Agreement.” The Supply
Agreement is a requirements contract which covers certain products, including fuselages, struts/pylons and nacelles
(including thrust reversers), wings and wing components, as well as tooling, for Boeing B737, B747, B767 and
B777 commercial aircraft programs for the life of these programs, including any commercial derivative models.
4
During the term of the Supply Agreement and absent default by Spirit, Boeing is obligated to purchase from Spirit
all of its requirements for products covered by the Sustaining SBP and is prohibited from manufacturing such
products itself. Although Boeing is not required to maintain a minimum production rate, Boeing is subject to a
maximum production rate above which it must negotiate with us regarding responsibility for non-recurring
expenditures related to a capacity increase.
Pricing. The Supply Agreement sets forth established prices for recurring products through May 2013.
Prices are adjusted each year based on a quantity-based price adjustment formula described in the Supply
Agreement whereby average per-unit prices are higher at lower volumes and lower at higher volumes. Prices
are subject to adjustment for abnormal inflation (above a specified level in any year) and for certain production,
schedule and other changes. See “— Changes” below.
Two years prior to the expiration of the established pricing terms, Spirit will propose pricing for the following
ten years or another period to be agreed upon by the parties. Boeing and Spirit are required to negotiate the pricing
for such additional period in good faith based on then-prevailing U.S. market conditions for forward fuselages,
B737 fuselages and B737/B777 struts and nacelles and based on then-prevailing global market conditions for all
other products. If the parties are unable to agree upon pricing, then, until such dispute is resolved, pricing will be
determined according to the price as of the expiration of the initial eight-year period, adjusted using the thenexisting quantity-based price adjustment formula and annual escalation until such time as future pricing is agreed.
Prices for commercial derivative models are to be negotiated in good faith by the parties based on thenprevailing market conditions. If the parties cannot agree on price, then they must engage in dispute resolution
pursuant to agreed-upon procedures.
Tooling. Under the Supply Agreement, Boeing owns all tooling used in production or inspection of products
covered by the Sustaining SBP. Spirit is responsible for providing all new tooling required for manufacturing and
delivering products under the Supply Agreement, and Boeing acquires title to such tooling upon completion of the
manufacturing of the tools and payment by Boeing. Because Boeing owns this tooling, Spirit may not sell, lease,
dispose of or encumber any of it. Spirit does, however, have the option to procure certain limited tooling needed to
manufacture and deliver both Boeing and non-Boeing parts.
Although Boeing owns the tooling, Spirit has the limited right to use this tooling without any additional charge
to perform its obligations to Boeing under the Supply Agreement and also to provide aftermarket services in
accordance with the rights granted to Spirit under other related agreements, including royalty-bearing license
agreements. Boeing is entitled to use the tooling only under limited circumstances. Spirit is responsible for
maintaining and insuring the tooling. Spirit’s rights to use the tooling are subject to the termination provisions of the
Supply Agreement.
Changes. Upon written notification to Spirit, Boeing has the right to make changes within the general scope
of work performed by Spirit under the Supply Agreement. If any such change increases or decreases the cost or time
required to perform, Boeing and Spirit must negotiate an equitable adjustment (based on rates, factors and
methodology set forth in the Supply Agreement) to the price or schedule to reflect the change, except that Spirit will
be responsible for absorbing the cost of certain changes. The Supply Agreement also provides for equitable
adjustments to product prices if there are order accelerations or decelerations, depending on lead times identified in
the Supply Agreement. In addition, the Supply Agreement provides for equitable adjustments to recurring part
prices as well as the price of non-recurring work upon the satisfaction of certain conditions and upon certain
minimum dollar thresholds being met.
Raw Materials. Spirit is required to procure from Boeing (or its designated service provider) certain raw
materials used in producing Boeing products, except that Spirit has the right to procure such raw materials from
other sources if it reasonably believes that Boeing or its designated service provider cannot support its requirements.
Revisions to the raw material pricing terms set forth in the Supply Agreement may entitle Spirit to a price
adjustment.
Third-Party Pricing. Spirit may be permitted to purchase supplies or subparts directly from Boeing’s
subcontractors under the terms of Boeing’s subcontracts. If Spirit does so, a majority of any savings achieved as a
5
result of purchasing through the subcontracts will be applied towards price reductions on the applicable Boeing
products.
Non-recurring Work Transfer. Following an event of default as described below or Boeing’s termination of
an airplane program, the Supply Agreement’s expiration, or the parties’ mutual agreement to terminate the existing
Supply Agreement, Spirit must transfer to Boeing all tooling and other non-recurring work relating to the affected
program. If the entire Supply Agreement expires or is cancelled, then all tooling and other non-recurring work
covered by the Supply Agreement must be transferred to Boeing.
Additional Spirit Costs. If Boeing rejects a product manufactured by Spirit, Boeing is entitled to repair or
rework the product, and Spirit is required to pay all reasonable costs and expenses incurred by Boeing related
thereto. Spirit is also required to reimburse Boeing for costs expended in providing Spirit and/or its contractors with
technical or manufacturing assistance on Spirit nonperformance issues.
Termination for Convenience. Subject to the restrictions prohibiting Boeing from manufacturing certain
products supplied by Spirit or purchasing such products from any other supplier, Boeing may, at any time, terminate
all or part of any order under the Supply Agreement by written notice to Spirit. If Boeing terminates all or part of an
order, Spirit is entitled to compensation for certain costs.
Termination of Airplane Program. If Boeing decides not to initiate or continue production of a Boeing
commercial aircraft model B737, B747, B767 or B777 or commercial derivative because it determines there is
insufficient business basis for proceeding, Boeing may terminate such model or derivative, including any order
therefore, by written notice to Spirit. In the event of such a termination, Boeing will be liable to Spirit for any orders
issued prior to the date of the termination notice and may also be liable for certain termination costs.
Events of Default and Remedies.
It is an “event of default” under the Supply Agreement if Spirit:
(1) fails to deliver products as required by the Supply Agreement;
(2) fails to provide certain “assurances of performance” required by the Supply Agreement;
(3) breaches the provisions of the Supply Agreement relating to intellectual property and proprietary
information;
(4) participates in the sale, purchase or manufacture of airplane parts without the required approval of the
Federal Aviation Administration, or FAA, or appropriate foreign regulatory agency;
(5) fails under certain requirements to maintain a system of quality assurance;
(6) fails to comply with other obligations under the Supply Agreement (which breach continues for more
than 10 days after notice is received from Boeing);
(7) is unable to pay its debts as they become due, dissolves or declares bankruptcy; or
(8) breaches the assignment provisions of the Supply Agreement (which breach continues for more than
10 days after notice is received from Boeing).
If an event of default occurs, Boeing has the right to exercise various remedies set forth in the Supply
Agreement, including the right to manufacture or to otherwise obtain substitute products, cancel any or all
outstanding orders under the Supply Agreement, and/or terminate the Supply Agreement. Boeing is limited,
however, in its ability to cancel orders or terminate the Supply Agreement for the defaults described in items (1),
(2) and (6) above. In such cases, Boeing may not cancel orders unless the event of default is material and has an
operational or financial impact on Boeing and may not terminate the Supply Agreement unless there are repeated,
material events of default and certain other criteria are satisfied. Boeing may only terminate the Supply Agreement
with respect to the aircraft program affected by the event of default. If two or more programs are affected by the
event of default, Boeing may terminate the entire Supply Agreement. Boeing may also require Spirit to transfer
tooling, raw material, work-in-process and other inventory and certain intellectual property to Boeing in return for
reasonable compensation.
6
Wrongful Termination. If Boeing wrongfully terminates an order, Spirit is entitled to recover lost profits, in
addition to any amount Spirit would be entitled to recover for a “Termination for Convenience,” as described above.
If Boeing wrongfully cancels or terminates the Sustaining SBP with respect to a model or program, then Spirit is
entitled to all remedies available at law or in equity, with monetary damages not to exceed an agreed limit.
Excusable Delay. If delivery of any product is delayed by circumstances beyond Spirit’s reasonable control,
and without Spirit’s or its suppliers’ or subcontractors’ error or negligence (including, without limitation, acts of
God, war, terrorist acts, fires, floods, epidemics, strikes, unusually severe weather, riots and acts of government), or
by any material act or failure to act by Boeing, each being an “excusable delay,” then, subject to certain exceptions,
Spirit’s delivery obligations will be extended. If delivery of any product is delayed by an excusable delay for more
than three months, Boeing may cancel all or part of any order for the delayed products.
If delivery of any product constituting more than 25% of the ship set value for one or more models of program
airplanes is delayed by an excusable delay for more than five months, Boeing may cancel the Sustaining SBP as it
applies to such models of program airplanes, and neither party will have any liability to the other, other than as
described in the above paragraph under the heading “Events of Default and Remedies.”
Suspension of Work. Boeing may at any time require Spirit to stop work on any order for up to 120 days.
During that time, Boeing may either direct Spirit to resume work or cancel the work covered by the stop-work order.
If Boeing directs Spirit to resume work or the 120-day period expires, Spirit must resume work, the delivery
schedule affected by the stop-work order will be extended and Boeing must compensate Spirit for its reasonable
direct costs incurred as a result of the stop-work order.
Assignment. Spirit may not assign its rights under the Supply Agreement other than with Boeing’s consent,
which Boeing may not unreasonably withhold unless the assignment is to a disqualified person. A disqualified
person is one: (1) whose principal business is as an OEM of commercial aircraft, space vehicles, satellites or defense
systems; (2) that Boeing reasonably believes will not be able to perform its obligations under the Supply
Agreement; (3) that, after giving effect to the transaction, would be a supplier of more than 40% by value of
the major structural components of any Boeing program then in production; or (4) who is, or is an affiliate of, a
commercial airplane operator or is one of five named corporate groups. Sale of majority voting power or of all or
substantially all of Spirit’s assets to a disqualified person is considered an assignment.
B787 Supply Agreement with Boeing
Overview. Spirit and Boeing also entered into a long-term supply agreement for Boeing’s new B787
program, or the B787 Supply Agreement, which covers the life of the program and commercial derivatives. The
B787 Supply Agreement is a requirements contract pursuant to which Spirit is Boeing’s exclusive supplier for the
forward fuselage, fixed and moveable leading wing edges, engine pylons and related tooling for the B787. While the
B787 Supply Agreement does not provide for a minimum or maximum production rate, the agreement acknowledges that Spirit will equip itself for a maximum rate of seven aircraft per month and will negotiate with Boeing
regarding an equitable price adjustment if additional expenditures are required to increase the production rate above
that level. Pursuant to the settlement described below, Spirit has agreed to proceed with the necessary capital and
equipment investments required to produce ten ship sets per month. Additional capital expenditures would be
needed for tooling and equipment to support a production rate above seven airplanes per month. Under the B787
Supply Agreement, Spirit also provides certain support, development and redesign engineering services to Boeing
at an agreed hourly rate.
Pricing. Pricing for the initial configuration of the B787-8 base model that is currently in production is
generally established through 2021, with prices decreasing as cumulative volume levels are met over the life of the
program. Prices are subject to adjustment for abnormal inflation (above a specified level in any year) and for certain
production, schedule and other specific changes, including design changes from the contract configuration baseline.
We are currently in negotiations with Boeing on pricing for certain changes. The parties have agreed to negotiate in
good faith the prices for future commercial derivatives such as the B787-9, based on principles consistent with the
B787 Supply Agreement terms as they relate to the B787-8 model.
7
Advance Payments/Deferred Revenue. We are required to repay Boeing a 2007 interest free cash advance of
$700.0 million, in the amount of a $1.4 million offset against the purchase price of each of the first five hundred
B787 ship sets delivered to Boeing. If Boeing does not take delivery of five hundred B787 ship sets prior to any
termination of the aircraft program, any advances not then repaid will first be applied against any outstanding B787
payments then due by Boeing to us, with any remaining balance to be repaid at the rate of $84.0 million per year
beginning in the year in which we deliver our final B787 production ship set to Boeing, prorated for the remaining
portion of the year in which we make our final delivery.
On March 26, 2008, Boeing and Spirit amended their existing B787 Supply Agreement to, among other things,
require Boeing to make additional advance payments to Spirit in 2008 in the amount of $396.0 million for
production articles. The additional advances will be applied against the full purchase price of the ship sets delivered
(net of the $1.4 million per ship set applied against the initial $700.0 million of advances described above) until fully
repaid, which is expected to occur before the delivery of the 50th ship set. In the event that Boeing does not take
delivery of a sufficient number of ship sets to repay the additional advances by the end of the aircraft program, any
additional advances not then repaid will first be applied against any outstanding B787 payments then due by Boeing
to us, with any remaining balance repaid beginning the year in which we deliver our final B787 production ship set
to Boeing, with the full amount to be repaid no later than the end of the subsequent year.
On June 23, 2009, Boeing and Spirit further amended their existing B787 Supply Agreement to, among other
things, require Boeing to make additional advances to Spirit for certain non-recurring derivatives and mission
improvement (D/MI) work. These additional advances will be paid to Spirit quarterly for non-recurring work, in
amounts determined pursuant to pricing provisions set forth in the agreement, and will be recovered over future
units. If Boeing does not take delivery of a sufficient number of ship sets to recover these additional advances by the
end of 2021, Spirit would be required to repay any outstanding balance in six equal annual installments. The first D/
MI advance payment was made to Spirit in August 2009, with subsequent payments each quarter thereafter.
Accordingly, portions of the advance repayment liability are included as current and long-term liabilities in our
consolidated balance sheet.
In December 2010, Spirit and Boeing entered into a memorandum of agreement and a settlement agreement in
connection with the B787 Program. As part of these agreements, Spirit received a payment in December which has
been recorded as deferred revenue (short-term) within the consolidated balance sheet pending finalization of a
contract amendment which would contain the final settlement terms for claims under the B787 contract between
Spirit and Boeing. If the final contract amendment is not agreed to by the second quarter of 2011, Boeing may
require reimbursement or set-off of the payment value over a short or long-term period of time. This final
amendment may contain provisions that alter the current structure of repayment for the advances described in the
section captioned “Risk Factors” in this Annual Report.
Termination of Airplane Program. If Boeing decides not to initiate or continue production of the B787
airplane program because it determines, after consultation with Spirit, that there is an insufficient business basis for
proceeding, Boeing may terminate the B787 airplane program, including any orders, by written notice to Spirit. In
the event of such a termination, Boeing will be liable to Spirit for costs incurred in connection with any orders issued
prior to the date of the termination notice and may also be liable for certain termination costs and for compensation
for any tools, raw materials or work-in-process requested by Boeing in connection with the termination.
Events of Default and Remedies.
It is an “event of default” under the B787 Supply Agreement if Spirit:
(1) fails to deliver products as required by the B787 Supply Agreement;
(2) breaches the provisions of the B787 Supply Agreement relating to intellectual property and proprietary information;
(3) participates in the sale, purchase or manufacture of airplane parts without the required approval of the
FAA or appropriate foreign regulatory agency;
(4) fails under certain requirements to maintain a system of quality assurance;
8
(5) fails to comply with other obligations under the B787 Supply Agreement (which breach continues for
more than 15 days after notice is received from Boeing);
(6) is unable to pay its debts as they become due, dissolves or declares bankruptcy;
(7) fails to comply with U.S. export control laws; or
(8) breaches the assignment provisions of the B787 Supply Agreement.
If an event of default occurs, Boeing has the right to exercise various remedies set forth in the B787 Supply
Agreement, including the right to manufacture or to otherwise obtain substitute products, cancel any or all
outstanding orders under the B787 Supply Agreement and/or terminate the B787 Supply Agreement. Before
terminating any order or the B787 Supply Agreement, Boeing is required to work with Spirit to attempt to agree on a
satisfactory recovery plan. Boeing may also require Spirit to transfer tooling, raw material, work-in-process and
other inventory and certain intellectual property to Boeing in return for reasonable compensation.
Assignment. Spirit may not assign its rights under the B787 Supply Agreement or any related order other
than with Boeing’s consent, which Boeing may not unreasonably withhold unless the assignment is to a disqualified
person. A disqualified person is one: (1) whose principal business is as an OEM of commercial aircraft, space
vehicles, satellites or defense systems; (2) that Boeing reasonably believes will not be able to perform its obligations
under the B787 Supply Agreement; (3) that, after giving effect to the transaction, would be a supplier of more than
40% by value of the major structural components of any Boeing program then in production; or (4) who is, or is an
affiliate of, a commercial airplane operator or is one of five named corporate groups. Sale of majority voting power
or of all or substantially all of Spirit’s assets to a disqualified person is considered an assignment.
License of Intellectual Property
Supply Agreement. All technical work product and works of authorship produced by or for Spirit with respect
to any work performed by or for Spirit pursuant to the Supply Agreement are the exclusive property of Boeing. All
inventions conceived by or for Spirit with respect to any work performed by or for Spirit pursuant to the Supply
Agreement and any patents claiming such inventions are the exclusive property of Spirit, except that Boeing will
own any such inventions that Boeing reasonably believes are applicable to the B787 platform, and Boeing may seek
patent protection for such B787 inventions or hold them as trade secrets, provided that, if Boeing does not seek
patent protection, Spirit may do so.
Except as Boeing otherwise agrees, Spirit may only use Boeing proprietary information and materials (such as
tangible and intangible confidential, proprietary and/or trade secret information and tooling) in the performance of
its obligations under the Supply Agreement. Spirit is prohibited from selling products manufactured using Boeing
proprietary information and materials to any person other than Boeing without Boeing’s authorization.
Spirit has granted to Boeing a license to Spirit proprietary information and materials and software and related
products for use in connection with the testing, certification, use, sale or support of a product covered by the Supply
Agreement, or the manufacture, testing, certification, use, sale or support of any aircraft including and/or utilizing a
product covered by the Supply Agreement. Spirit has also granted to Boeing a license to use Spirit intellectual
property to the extent such intellectual property interferes with Boeing’s use of products or intellectual property
belonging to Boeing under the Supply Agreement.
To protect Boeing against Spirit’s default, Spirit has granted to Boeing a license, exercisable on such default to
practice and/or use, and license for others to practice and/or use on Boeing’s behalf, Spirit’s intellectual property
and tooling related to the development, production, maintenance or repair of products in connection with making,
using and selling products. As a part of the foregoing license, Spirit must, at the written request of and at no
additional cost to Boeing, promptly deliver to Boeing any such licensed property considered by Boeing to be
necessary to exercise Boeing’s rights under the license.
B787 Supply Agreement. The B787 Supply Agreement establishes three classifications for patented invention and proprietary information: (1) intellectual property developed by Spirit during activity under the B787
Supply Agreement, or Spirit IP; (2) intellectual property developed jointly by Boeing and Spirit during that activity,
9
or Joint IP; and (3) all other intellectual property developed during activity under the B787 Supply Agreement, or
Boeing IP.
Boeing may use Spirit IP for work on the B787 program and Spirit may license it to third parties for work on
such program. Spirit may also not unreasonably withhold consent to the license of such intellectual property to third
parties for work on other Boeing programs, provided that it may require a reasonable royalty to be paid and, with
respect to commercial airplane programs, that Spirit has been offered an opportunity, to the extent commercially
feasible, to work on such programs.
Each party is free to use Joint IP in connection with work on the B787 and other Boeing programs, but each
must obtain the consent of the other to use it for other purposes. If either party wishes to license Joint IP to a third
party for work on a Boeing program other than the B787, then the other party may require a reasonable royalty, but
may not unreasonably withhold its consent, as long as (if the program in question is another Boeing commercial
airplane program) Spirit has been offered an opportunity, to the extent commercially feasible, to perform work for
the particular program.
Spirit is entitled to use Boeing IP for the B787 program, and may require Boeing to license it to subcontractors
for the same purpose.
Additional License From Boeing. Boeing has licensed certain intellectual property rights to Spirit under a
Hardware Material Services General Terms Agreement, or HMSGTA, and four initial Supplemental License
Agreements, or SLAs, under the HMSGTA. The HMSGTA and the initial SLAs grant Spirit licenses to use Boeing
intellectual property to manufacture listed parts for the aftermarket and to perform maintenance, repair and
overhaul, or MRO, of aircraft and aircraft components for customers other than Boeing. These agreements also
permit Spirit to use knowledge obtained by Spirit personnel prior to the closing of the Boeing Acquisition. Spirit
also may obtain additional SLAs from Boeing and those SLAs will also supersede the restrictions on Spirit’s use of
Boeing’s proprietary information and materials described above.
Intellectual Property
We have several patents pertaining to our processes and products. While our patents, in the aggregate, are of
material importance to our business, no individual patent or group of patents is of material importance. We also rely
on trade secrets, confidentiality agreements, unpatented knowledge, creative products development and continuing
technological advancement to maintain our competitive position.
Our Products
We are organized into three principal reporting segments: (1) Fuselage Systems, which includes forward, mid
and rear fuselage sections; (2) Propulsion Systems, which includes nacelles, struts/pylons and engine structural
components; and (3) Wing Systems, which includes wing systems and components, flight control surfaces and other
miscellaneous structural parts. The Fuselage Systems segment manufactures products at our facilities in Wichita,
Kansas and Kinston, North Carolina, the Propulsion Systems segment manufactures products at our facilities in
Wichita, Kansas, and the Wing Systems segment manufactures products at our facilities in Tulsa and McAlester,
Oklahoma, Prestwick, Scotland, Subang, Malaysia and Kinston, North Carolina. We also recently constructed a
fuselage assembly plant for the A350 XWB aircraft in Saint-Nazaire, France which is expected to begin operations
in 2011, which will receive and assemble center fuselage frame sections designed and manufactured in our Kinston,
North Carolina facility, and transport the assembled sections to Airbus. Fuselage Systems, Propulsion Systems and
Wing Systems represented approximately 49%, 25%, and 26%, of our net revenues for the twelve months ended
December 31, 2010. All other activities fall within the All Other segment, representing less than 1% of our net
revenues for the twelve months ended December 31, 2010, principally made up of sundry sales of miscellaneous
services, tooling contracts, and sales of natural gas through a tenancy-in-common with other companies that have
operations in Wichita.
10
Commercial Aircraft Structures
We principally design, engineer and manufacture commercial aircraft structures such as fuselages, nacelles
(including thrust reversers), struts/pylons, wings and wing assemblies and flight control surfaces. We are the largest
independent supplier of aerostructures to Boeing and one of the largest independent suppliers of aerostructures to
Airbus. Sales related to the commercial aircraft structures market, some of which may be used in military
applications, represented approximately 98% of our net revenues for the year ended December 31, 2010.
Our structural components, in particular the forward fuselage and nacelles, are among the most complex and
highly engineered structural components and represent a significant percentage of the costs of each aircraft. We are
currently the sole-source supplier of 96% of the products we sell to Boeing and Airbus, as measured by dollar value
of products sold. We typically sell a package of aerostructure components, referred to as a ship set, to our customers.
The following table summarizes the major commercial (including derivatives, regional and announced
business jets) programs that we currently have under long-term contract by product and aircraft platform.
Product
Fuselage Systems
Forward Fuselage
Other Fuselage Sections
Propulsion Systems
Nacelles (including Thrust
Reversers)
Struts/Pylons
Wing Systems
Flight Control Surfaces
Empennages
Wing Structures
Description
Aircraft Platform
Forward section of fuselage which
houses flight deck, passenger
cabin and cargo area
Mid-section and other sections of
the fuselage and certain other
structural components, including
floor beams
B737, B747, B767, B777, B787
Aerodynamic structure
surrounding engines
B737, B747, B767, B777, Rolls
Royce BR725 Engine (for
Gulfstream G650)
B737, B747, B767, B777, B787,
Mitsubishi Regional Jet,
Bombardier CSeries
Structure that connects engine to
the wing
Flaps and slats
Empennage horizontal stabilizer
and vertical fin and spar
assemblies
Wing framework which consists
mainly of spars, ribs, fixed leading
edge, stringers, trailing edges and
flap track beams
B737, B747, B777, A350 XWB
B737, B777, A320 family
B737, Hawker Beechcraft 800
series
B737, B747, B767, B777, B787,
A320 family, A330, A340, A350
XWB, A380, Gulfstream G650,
Gulfstream G250
Military Equipment
In addition to providing aerostructures for commercial aircraft, we also design, engineer and manufacture
structural components for military aircraft. We have been awarded a significant amount of work for the 737 P-8A
and 737 C40. The 737 P-8A and 737 C40 are commercial aircraft modified for military use. Other military programs
for which we provide products are AWACS (E-6), the development of the Sikorsky CH-53K, and various other
programs.
11
The following table summarizes the major military programs that we currently have under long-term contract
by product and military platform. Rotorcraft is part of the Fuselage Systems segment and low observables, radome
and other military are part of the Wing Systems segment.
Product
Low Observables
Rotorcraft
Radome
Other Military
Description
Radar absorbent and translucent
materials
Forward cockpit and cabin
Radome new builds &
refurbishment
Fabrication, bonding, assembly,
testing, tooling, processing,
engineering analysis, and training
Military Platform
Various
Sikorsky- CH-53K Development
Program
Airborne Warning and Control
System (AWACS)
Various
Aftermarket
We continue to broaden our base for aftermarket support of the products we design and build. We have
developed our global sales and marketing channel for spare parts, with sales offices in Singapore, Ireland, China,
and the U.S. Our Spirit catalog has over 14,000 parts that we are selling directly to the marketplace by virtue of
having obtained parts manufacturing approvals from the FAA. In the area of MRO we have repair stations in
Wichita, Kansas, with FAA and European Aviation Safety Agency (EASA) certifications, and Prestwick, Scotland,
which is EASA-certified with FAA certification pending. In addition, in late 2009, we opened an MRO repair
station through a joint venture in Jinjiang, China, Taikoo Spirit AeroSystems Composite Company, Ltd., which
holds Civil Aviation Administration of China certification and FAA approval.
The following table summarizes our aftermarket products and services.
Product
Spares
Maintenance, Repair and Overhaul
Rotable Assets
Description
Provides replacement parts and
components support for:
In production aircraft
Out of production aircraft
Certified repair stations that
provide complete on-site nacelle
repair and overhaul; maintains
global partnerships to support
MRO services
Maintain a pool of rotable assets
for exchange and/or lease
Aircraft Platform
B737NG, B747, B767, B777,
B787, Gulfstream 250 and 650,
Hawker Beechcraft 850XP, A320
family, A330, A340,A380
B707, B727, B737 Classic, B757
B737, B747, B757, B767, B777
B737, B747, B767, B777
Segment Information
We operate in three principal segments: Fuselage Systems, Propulsion Systems and Wing Systems. Substantially all revenues in the three principal segments are with Boeing, with the exception of Wing Systems, which
includes revenues from Airbus and other customers. We serve customers in addition to Boeing and Airbus across
our three principal segments; however, these customers currently do not represent a significant portion of our
revenues, and are not expected to in the near future. All other activities fall within the All Other segment, principally
made up of sundry sales of miscellaneous services, tooling contracts, and sales of natural gas through a
tenancy-in-common with other companies that have operations in Wichita, Kansas. Our primary profitability
measure to review a segment’s operating performance is segment operating income before unallocated corporate
selling, general and administrative expenses, unallocated research and development, and unallocated cost of sales.
12
Unallocated corporate selling, general and administrative expenses include centralized functions such as accounting, treasury and human resources. Unallocated research and development includes research and development
efforts that benefit the company as a whole and are not unique to a specific segment. Unallocated cost of sales is
related to the grant of shares to employees represented by the International Association of Machinists and
Aerospace Workers (“IAM’’) in connection with the ratification of a new ten-year labor contract on June 25, 2010,
early retirement incentives for represented members of the IAM who made elections to retire in 2010, and grant of
shares to employees represented by the International Union, United Automobile, Aerospace & Agricultural
Implement Workers of America (“UAW”) in connection with the ratification of a new ten-year labor contract on
December 18, 2010. All of these unallocated items are not specifically related to our operating segments and are not
allocated in measuring the operating segments’ profitability and performance and operating margins.
The Fuselage Systems segment includes development, production and marketing of forward, mid and rear
fuselage sections and systems, primarily to aircraft OEMs (OEM refers to aircraft original equipment manufacturer), as well as related spares and maintenance, repairs and overhaul (“MRO”). The Fuselage Systems segment
manufactures products at our facilities in Wichita, Kansas and Kinston, North Carolina.
The Propulsion Systems segment includes development, production and marketing of struts/pylons, nacelles
(including thrust reversers) and related engine structural components primarily to aircraft or engine OEMs, as well
as related spares and MRO services. The Propulsion Systems segment manufactures products at our facilities in
Wichita, Kansas.
The Wing Systems segment includes development, production and marketing of wings and wing components
(including flight control surfaces) as well as other miscellaneous structural parts primarily to aircraft OEMs, as well
as related spares and MRO services. These activities take place at the Company’s facilities in Tulsa and McAlester,
Oklahoma, Kinston, North Carolina, Prestwick, Scotland, Subang, Malaysia and Kinston, North Carolina.
Our segments are consistent with the organization and responsibilities of management reporting to the chief
operating decision-maker for the purpose of assessing performance. Our definition of segment operating income
differs from operating income as presented in the financial statements and a reconciliation of the segment and
consolidated results is provided in the table set forth below. Most selling, general and administrative expenses, and
all interest expense or income, related financing costs and income tax amounts, are not allocated to the operating
segments.
While some working capital accounts are maintained on a segment basis, most of our assets are not managed or
maintained on a segment basis. Property, plant and equipment, including tooling, is used in the design and
production of products for each of the segments and, therefore, is not allocated to any individual segment. In
addition, cash, prepaid expenses, other assets and deferred taxes are managed and maintained on a consolidated
basis and generally do not pertain to any particular segment. Raw materials and certain component parts are used in
the production of aerostructures across all segments. Work-in-process inventory is identifiable by segment, but is
managed and evaluated at the program level. As there is no segmentation of our productive assets, depreciation
expense (included in fixed manufacturing costs and selling, general and administrative expenses) and capital
expenditures, no allocation of these amounts has been made solely for purposes of segment disclosure requirements.
13
The following table shows segment information (dollars in millions):
December 31, 2010
For the Year Ended
December 31, 2009
December 31, 2008
$2,035.1
1,061.8
1,067.4
8.1
$2,003.6
1,030.0
1,024.4
20.5
$1,758.4
1,031.7
955.6
26.1
$4,172.4
$4,078.5
$3,771.8
Segment Operating Income
Fuselage Systems . . . . . . . . . . . . . . . . .
Propulsion Systems . . . . . . . . . . . . . . . .
Wing Systems . . . . . . . . . . . . . . . . . . . .
All Other. . . . . . . . . . . . . . . . . . . . . . . .
$ 292.3
137.5
101.0
(1.8)
$ 287.6
122.6
20.7
(1.4)
$ 287.6
162.2
99.7
0.3
Business Segment Operating Income
Unallocated corporate SG&A . . . . . . . . . .
Unallocated research and development . . . .
Unallocated cost of sales(1) . . . . . . . . . . . .
529.0
(139.7)
(3.6)
(28.7)
429.5
(122.7)
(3.5)
—
Segment Net Revenues
Fuselage Systems . . . . . . . . . . . . . . . . .
Propulsion Systems . . . . . . . . . . . . . . . .
Wing Systems . . . . . . . . . . . . . . . . . . . .
All Other. . . . . . . . . . . . . . . . . . . . . . . .
Total operating income
$ 357.0
$ 303.3
549.8
(141.7)
(2.4)
—
$ 405.7
(1) Unallocated cost of sales for the twelve months ended December 31, 2010 includes charges related to the grant
of shares to employees represented by the IAM in connection with the ratification of a new ten-year labor
contract on June 25, 2010, early retirement incentives for members represented by IAM who made elections to
retire in 2010, and grants of shares to employees represented by the UAW in connection with the ratification of a
new ten-year labor contract on December 18, 2010.
Sales and Marketing
Our established sales and marketing infrastructure supports our efforts to expand our business with new and
existing customers in three sectors of the aerostructures industry: (1) large commercial airplanes, (2) business and
regional jets and (3) military/helicopter. The sales directors establish and maintain relationships with individual
customers and are supported in their campaigns by sales teams within specific product specialties and a market
research team performing various analyses related to those products and customers. The comprehensive sales and
marketing teams work closely to ensure a consistent, single message approach with customers.
Although we have long-term contracts with Boeing and Airbus on programs such as the B737, B787, A320,
A350 XWB and A380, and OEMs generally desire to minimize costs by retaining established aerostructure
suppliers, our sales and marketing team continues to maintain strong relationships with the OEMs to position us for
future business opportunities. Our marketing team continues to research and analyze trends in our industry and in
new product development, and our sales team maintains regular contact with key Boeing and Airbus decisionmakers to prepare for new business opportunities from both companies.
We maintain a customer contact database to maximize our interactions with existing and potential customers.
In the time that Spirit has existed as an independent company, we have been successful in building a positive identity
and name recognition for the Company brand through advertising, trade shows, sponsorships and Spirit customer
events. In order to diversify and win new customers, we market our expertise in the design and manufacture of major
aerostructures and advanced manufacturing capabilities with both composites and traditional metals processes.
14
Customers
Our primary customers are aircraft OEMs. Boeing and Airbus are our two largest customers. We are the largest
independent aerostructures supplier to Boeing and one of the largest independent suppliers to Airbus. We entered
into long-term supply agreements with our customers to provide aerostructure products to aircraft programs. As of
December 31, 2010, virtually all of the products we sell are under long-term contracts and 96% of those products, as
measured by dollar value of products sold, are supplied by us on a sole-sourced basis.
We have good relationships with our customers due to our diverse product offerings, leading design and
manufacturing capabilities using both metallic and composite materials, and competitive pricing.
Boeing. For the twelve months ended December 31, 2010, approximately 83% of our revenues were from
sales to Boeing. We have a strong relationship with Boeing given our predecessor’s 75+ year history as a Boeing
division. Many members of our senior management team are former Boeing executives or managers who have
longstanding relationships with Boeing and continue to work closely with Boeing. As part of the Boeing
Acquisition, we entered into a long-term supply agreement under which we are Boeing’s exclusive supplier for
substantially all of the products and services provided by Boeing Wichita prior to the Boeing Acquisition for the life
of the programs. In addition, Boeing selected us to be the design leader for the Boeing B787 forward fuselage based
in part on our expertise with composite technologies.
We believe our relationship with Boeing is unmatched in the industry and will allow us to continue to be an
integral partner with Boeing in the designing, engineering and manufacturing of complex aerostructures.
Airbus. For the twelve months ended December 31, 2010, approximately 11% of our revenues were from
sales to Airbus. As a result of the BAE Acquisition, we became one of the largest independent aerostructures
suppliers to Airbus, and we have expanded our relationship through new business wins. Under our supply agreement
with Airbus, we supply products for the life of the aircraft program, including commercial derivative models, with
pricing determined through 2015. For the A350 XWB and A380 programs, we have long-term requirements
contracts with Airbus that cover a fixed number of units. We believe we can leverage our relationship with Airbus
and our history of delivering high-quality products to further increase our sales to Airbus and continue to partner
with Airbus on new programs going forward.
In May 2008, Spirit announced that it had signed a contract with Airbus to design and manufacture major
composite fuselage structures for the A350 XWB program. To accommodate this and other work, Spirit announced
plans to expand its operations with a new facility in Kinston, North Carolina. Construction of the new facility began
in the fall of 2008 and operations commenced in the second quarter of 2010. Additionally, in the fall of 2009, we
began construction on a new facility in Saint-Nazaire, France which will receive and assemble center fuselage frame
sections designed and manufactured in our Kinston, North Carolina facility, and transport the assembled sections to
Airbus. Construction on the France facility was completed in 2010, with operations to begin in 2011.
In July 2008, Spirit Europe announced that it had signed a contract with Airbus to design and manufacture a
major wing structure for the A350 XWB program. Spirit Europe will design and assemble the wing leading edge
structure primarily at its facility in Prestwick, Scotland. The composite front spar will be built at the new facility in
Kinston, North Carolina with sub-assemblies being manufactured at the Spirit AeroSystems Malaysia facility in
Subang, Malaysia.
Although most of our revenues are obtained from sales inside the U.S., we generated $498.4 million,
$575.9 million, and $465.4 million in sales to international customers for the twelve months ended December 31,
2010, December 31, 2009, and December 31, 2008, respectively, primarily to Airbus.
15
The following chart illustrates the split between domestic and foreign revenues (dollars in millions):
Revenue Source(1)
Year Ended
December 31, 2010
Percent of
Total
Net Revenues
Net Revenues
Year Ended
December 31, 2009
Percent of
Total
Net Revenues
Net Revenues
88%
$3,502.6
United States . . . . . .
International
United Kingdom . .
Other . . . . . . . . . .
$3,674.0
400.4
98.0
10
2
385.7
190.2
9
5
413.3
52.1
11
1
Total International . . .
498.4
12
575.9
14
465.4
12
Total Revenues . . . . .
$4,172.4
100%
$4,078.5
86%
Year Ended
December 31, 2008
Percent of
Total
Net Revenues
Net Revenues
100%
$3,306.4
$3,771.8
88%
100%
(1) Revenues are attributable to countries based on the destination where goods are delivered.
The international revenue is included primarily in the Wing Systems segment. All other segment revenues are
primarily from U.S. sales. Approximately 7% of our total assets based on book value are located in the
United Kingdom as part of Spirit Europe with approximately another 2% of our total assets located in countries
outside the United States and the United Kingdom.
Expected Backlog
As of December 31, 2010, our expected backlog associated with large commercial aircraft, regional jet,
business jet, and military equipment deliveries through 2016, calculated based on contractual product prices and
expected delivery volumes, was approximately $28.3 billion. This is an increase of $0.3 billion from our
corresponding estimate as of the end of 2009 reflecting the fact that Airbus and Boeing new orders exceeded
deliveries in 2010. Backlog is calculated based on the number of units Spirit is under contract to produce on our
fixed quantity contracts, and Boeing and Airbus announced backlog on our supply agreements. The number of units
may be subject to cancellation or delay by the customer prior to shipment, depending on contract terms. The level of
unfilled orders at any given date during the year may be materially affected by the timing of our receipt of firm
orders and additional airplane orders, and the speed with which those orders are filled. Accordingly, our expected
backlog as of December 31, 2010, may not necessarily represent the actual amount of deliveries or sales for any
future period.
Manufacturing and Engineering
Manufacturing
Our expertise is in designing, engineering and manufacturing large-scale, complex aerostructures. We
maintain seven state-of-the-art manufacturing facilities in Wichita, Kansas; Tulsa, Oklahoma; McAlester,
Oklahoma; Kinston, North Carolina; Prestwick, Scotland; Saint-Nazaire, France; and Subang, Malaysia.
Our core manufacturing competencies include:
• composites design and manufacturing processes;
• leading mechanized and automated assembly and fastening techniques;
• large-scale skin fabrication using both metallic and composite materials;
• chemical etching and metal bonding expertise;
• monolithic structures technology; and
• precision metal forming producing complex contoured shapes in sheet metal and extruded aluminum.
Our manufacturing expertise is supported by our state-of-the-art equipment. We have over 20,000 major pieces
of equipment installed in our customized manufacturing facilities. For example, for the manufacture of the B787
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composite forward fuselage, we installed a 30-foot diameter by 70-foot long autoclave, which is one of the largest
autoclaves in the world. An autoclave is an enclosure device that generates controlled internal heat and pressure
conditions used to cure and bond certain resins and is used in the manufacture of composite structures. We installed
a comparable autoclave as well as other specialized machines in Kinston, North Carolina to support our work on the
A350 XWB. We intend to continue to make the appropriate investments in our facilities to support and maintain our
industry-leading manufacturing expertise.
Engineering
We have approximately 1,700 engineers and technical employees, including over 70 contract engineers. In
addition, we currently contract the work of more than 610 engineers from engineering services firms worldwide,
including 55 engineers through Spirit-Progresstech LLC, a joint venture we entered into with Progresstech LTD of
Moscow, Russia in November 2007. We also employ 24 technical fellows, who are experts in engineering and keep
the Company current with new technology by producing technical solutions for new and existing products and
processes; 12 FAA designated engineering representatives (“DER”), experienced engineers appointed by the FAA
to approve engineering data used for certification; and 10 authorized representatives, who possess the same
qualifications and perform the same certification functions as DERs, but with authority from the Boeing Certification and Compliance Organization. The primary purpose of the engineering organization is to provide
continuous support for ongoing design, production and process improvements. We possess a broad base of
engineering skills in metal and composite fabrication and assembly, chemical processing and finishing, tooling
design and development, and quality and precision measurement technology, systems and controls.
Our engineering organization is composed of four primary groups, including: (1) Structures Design and
Drafting, which focuses on production support, customer introductions, design-for-manufacturing and major
product derivatives; (2) Structures Technology, which focuses on overall structural integrity over the lifecycle of the
airframe through stress and durability analysis, damage tolerance analysis and vibration testing; (3) Manufacturing
Engineering, responsible for applying lean manufacturing techniques, interpreting design drawings and providing
manufacturing sequence work plans; and (4) Liaison, Lab and Materials, Processes and Standards, which conducts
research into defects discovered by quality assurance through analytical chemistry, metallurgical, static and
dynamic testing and full-scale testing.
We believe our leading engineering capabilities are a key strategic factor differentiating us from some of our
competitors.
Research and Development
We believe that world-class research and development helps to maintain our position as an advanced partner to
our OEM customers’ new product development teams. As a result, we spend significant capital and financial
resources on our research and development, including approximately $51.5 million during the year ended
December 31, 2010, approximately $56.7 million during the year ended December 31, 2009, and approximately
$48.4 million during the year ended December 31, 2008. Through our research, we strive to develop unique
intellectual property and technologies that will improve our OEM customers’ products and, at the same time,
position us to win work on new products. Our development effort, which is an ongoing process that helps us reduce
production costs and streamline manufacturing, is currently focused on preparing for initial production of new
products and improving manufacturing processes on our current work.
Our research and development is geared toward the architectural design of our principal products: fuselage
systems, propulsion systems and wing systems. We are currently focused on research in areas such as advanced
metallic joining, low-cost composites, acoustic attenuation, efficient structures, systems integration, advanced
design and analysis methods, and new material systems. Other items that are expensed relate to research and
development that is not funded by the customer. We collaborate with universities, research facilities and technology
partners in our research and development.
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Suppliers and Materials
The principal raw materials used in our manufacturing operations are aluminum, titanium and materials such
as carbon fiber used to manufacture composites. We also use purchased products such as machined parts, sheet
metal parts, non-metallic parts and assemblies. In addition, we purchase assemblies and subassemblies from various
manufacturers which are used in the final aerostructure assembly.
Currently we have approximately 1,507 active suppliers with no one supplier representing more than 4% of our
cost of goods sold. Our strategy is to enter into long-term supply contracts with our largest suppliers to secure
competitive pricing. Our exposure to rising raw material prices is somewhat limited due to raw materials purchase
contracts which are either based on fixed pricing or priced at reduced rates through Boeing’s or Airbus’ highvolume purchase contracts for such raw materials.
Although we believe our material costs are competitive, we continue to seek ways to further reduce these costs.
We have global sourcing initiatives that increase the amount of material sourced from low-cost countries in Asia and
Central Europe. Historically, Boeing Wichita and BAE Aerostructures purchased certain parts from other Boeing or
BAE Systems facilities, respectively, since they operated as divisions of Boeing and BAE Systems, respectively. We
continue to achieve cost savings by reducing the amount of parts that we purchase from Boeing and BAE Systems.
Following the Boeing divestiture and BAE Systems acquisition, we have been free to contract with third parties for,
or to produce internally, the parts that Boeing and BAE Systems historically supplied. We have successfully
implemented the process of moving to internal production with the opening of our facility in Malaysia enabling
further cost reductions in 2010.
Environmental Matters
Our operations and facilities are subject to various environmental, health and safety laws and regulations,
including federal, state, local and foreign government requirements, governing, among other matters, the emission,
discharge, handling and disposal of regulated materials, the investigation and remediation of contaminated sites,
and permits required in connection with our operations. Our operations are designed, maintained and operated to
promote protection of human health and the environment. Although we believe that our operations and facilities are
in material compliance with applicable environmental and worker protection laws and regulations, management
cannot provide assurance that future changes in such laws or their enforcement, or the nature of our operations will
not require us to make significant additional expenditures to ensure continued compliance. Further, we could incur
substantial costs, including costs to reduce air emissions, clean-up costs, fines and sanctions, and third-party
property damage or personal injury claims as a result of violations of or liabilities under environmental laws,
relevant common law or the environmental permits required for our operations.
In March 2009, we received a Notice of Violation from the federal Environmental Protection Agency (the
“EPA”) alleging violations of the Resource Conservation and Recovery Act at our Wichita facility based on an
inspection in 2006, including an allegation of operating a hazardous waste storage facility without a permit. The
alleged violations have been corrected. After informal settlement discussions with the EPA concluded without a
settlement, the EPA filed a formal complaint to initiate the administrative adjudication process. Spirit answered the
complaint and the parties are pursuing a mediation opportunity afforded as part of the process. The total proposed
penalty is approximately $240,000.
New regulations or more stringent enforcement of existing requirements could also result in additional
compliance costs. For example, various governments have enacted or are considering enactment of laws to reduce
emissions of carbon dioxide and other so-called greenhouse gases (“GHG”). In particular, the U.S. EPA has
promulgated new regulations that require certain Spirit facilities to report annual GHG emissions and will require
new operating permits to be issued for those facilities. In the absence of a national price for carbon-based air
pollutant emissions, new legislation from Congress, or information relative to additional regulation from the EPA
we are not in a position at this time to estimate the costs which may result from these or similar actions.
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United States
Under some environmental laws in the United States, a current or previous owner or operator of a contaminated
site may be held liable for the entire cost of investigation, removal or remediation of regulated materials at such
property, whether or not the owner or operator knew of, or was responsible for, the presence of such regulated
materials. Persons who arrange for disposal or treatment of hazardous materials also may be liable for the costs of
investigation, removal or remediation of those substances at a disposal or treatment site, regardless of whether the
affected site is owned or operated by them. Because we own and/or operate a number of facilities that have a history
of industrial or commercial use and because we arrange for the disposal of regulated materials at many disposal
sites, we may and do incur costs for investigation, removal and remediation.
The Asset Purchase Agreement for the Boeing Acquisition, referred to herein as the “Asset Purchase
Agreement”, provides, with limited exceptions, that Boeing is responsible for environmental liabilities relating
to conditions existing at the Wichita, Kansas and Tulsa and McAlester, Oklahoma facilities as of the Boeing
Acquisition date. For example, Boeing is subject to an administrative consent order issued by the Kansas
Department of Health and Environment, or KDHE, to contain and clean up contaminated groundwater, which
underlies a majority of the Wichita site. Pursuant to the KDHE order, Boeing has a long-term remediation plan in
place, and containment and remediation efforts are underway. We are responsible for any environmental conditions
that we cause at these facilities following the Boeing Acquisition.
United Kingdom
In the United Kingdom, remediation of contaminated land may be compelled by the government in certain
situations. If a property is to be redeveloped, in its planning role, the local authority may require remediation as a
condition to issuing a permit. In addition, in situations in which the contamination is causing harm to human health
or polluting the environment, the local authority may use its environmental legislative powers to force remediation
so that the impacted areas are “suitable for use.” If contamination is polluting the property of a third party or causing
loss, injury or damage, the third party may file an action against the owner or operator of the source in common law
based on negligence or nuisance to recover the value of the loss, injury or damage sustained.
Prestwick Facility. BAE Systems indemnified us, subject to certain contractual limitations and conditions, for
any clean-up costs and other losses, liabilities, expenses and claims related to existing pollution at the Prestwick
facility, existing pollution that migrates from the Prestwick facility to a third party’s property and any pollution that
migrates to the Prestwick facility from the property retained by BAE Systems. Subject to certain exceptions, the
indemnity has an aggregate liability cap of £40.0 million. As of December 31, 2010, we do not anticipate reaching
the liability cap.
Other International Sites
Spirit’s interests in other international sites are subject to foreign government environmental laws and
regulations. It is our policy and practice to comply with all requirements, both domestic and international. We
believe that our procedures are properly designed to prevent unreasonable risk of environmental damage and
resulting financial liability in connection with our business.
Competition
Although we are one of the largest independent non-OEM aerostructures suppliers, based on annual revenues,
with an estimated 16% share of the global aerostructures market, this market remains highly competitive and
fragmented. Our primary competition currently comes from either work performed by internal divisions of OEMs
or third-party aerostructures suppliers, but direct competition continues to grow.
Our principal competitors among OEMs may include Airbus, Boeing, Dassault Aviation, Embraer Brazilian
Aviation Co., Gulfstream Aerospace Co., Hawker Beechcraft Corporation, United Technologies, and Textron Inc.
These OEMs may choose not to outsource production of aerostructures due to their own direct labor and overhead
considerations and capacity utilization at their own facilities. Consequently, traditional factors affecting competition, such as price and quality of service, may not be significant determinants when OEMs decide whether to
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produce parts in-house or to outsource them. It is also true that offset requirements from customers of OEMs may
drive some decisions relative to their business model for production.
Our principal competitors among non-OEM aerostructures suppliers are Aircelle S.A., Alenia Aeronautica,
Fuji Heavy Industries, Ltd., GKN Aerospace, The Goodrich Corporation, Kawasaki Heavy Industries, Inc.,
Mitsubishi Heavy Industries, Saab AB, Snecma, Triumph Group, Inc., Latecoere S.A., Aerolia SAS, Premium
Aerotech GmbH and Nexcelle. Our ability to compete for new aerostructures contracts depends upon (1) our design,
engineering and manufacturing capabilities, (2) our underlying cost and pricing structure, (3) our business
relationship with OEMs, and (4) our available manufacturing capacity.
Employees
As of December 31, 2010, we had approximately 12,589 employees and approximately 185 contract labor
personnel, located in our four U.S. facilities. Approximately 83% of our U.S. employees are represented by five
unions. Our largest union is the IAM, which represents approximately 5,704 employees, or 45%, of the
U.S. workforce. We successfully negotiated a new long-term ten-year contract with this union in 2010, which
is in effect through June 25, 2020. The Society of Professional Engineering Employees in Aerospace — Wichita
Technical and Professional Unit (“SPEEA — WTPU”) represents approximately 2,302 employees, or 18%, of the
U.S. workforce. This union contract is in effect through July 11, 2011. The UAW represents approximately
1,449 employees, or 12%, of the U.S. workforce. This union contract is in effect through November 30, 2020. The
Society of Professional Engineering Employees in Aerospace — Wichita Engineering Unit (“SPEEA — WEU”)
represents approximately 804 employees, or 6%, of the U.S. workforce. We successfully negotiated a new contract
with this union in 2009, which is in effect through December 1, 2012. The International Brotherhood of Electrical
Workers, or IBEW, represents approximately 175 employees, or 1%, of the U.S. workforce. This union contract is in
effect through September 18, 2020.
As of December 31, 2010, we had approximately 919 employees and approximately 49 contract labor
personnel located in our two U.K. facilities. Approximately 655, or 71%, of our U.K. employees are represented by
one union, Unite (Amicus Section). We have entered into a three year labor agreement with Unite, the terms of
which are generally negotiated on an annual basis. Wages are typically the primary subject of our negotiations,
while other contract terms generally remain the same from year to year until both parties agree to change them
(either separately or in the aggregate). This labor agreement expires January 1, 2012.
As of December 31, 2010, we had approximately 410 employees and approximately 6 contract labor personnel
in our Malaysia facility. None of our Malaysia employees are represented by a union.
We consider our relationships with our employees to be satisfactory.
Government Contracts
Companies engaged in supplying defense-related equipment and services to U.S. Government agencies, either
directly or by subcontract, are subject to business risks specific to the defense industry. These risks include the
ability of the U.S. Government to unilaterally: (1) suspend or debar us from receiving new prime contracts or
subcontracts; (2) terminate existing contracts; (3) reduce the value of existing contracts; (4) audit our contractrelated costs and fees, including allocated indirect costs; and (5) control and potentially prohibit the export of our
products.
Most U.S. Government contracts for which we subcontract can be terminated by the U.S. Government either
for its convenience or if the prime contractor defaults by failing to perform under the contract. In addition, the prime
contractor typically has the right to terminate our subcontract for its convenience or if we default by failing to
perform under the subcontract. Termination for convenience provisions generally provide only for our recovery of
costs incurred or committed, settlement expenses and profit on the work completed prior to termination. Termination for default provisions generally provide for the subcontractor to be liable for excess costs incurred by the
prime contractor in procuring undelivered items from another source.
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Foreign Ownership, Control or Influence (“FOCI”)
Due to the fact that more than 50% of our voting power is effectively controlled by a non-U.S. entity (Onex) we
are required to operate in accordance with the terms and requirements of a Special Security Agreement, or SSA,
with the Department of Defense (“DOD”). Under the DOD National Industrial Security Program Operating Manual
(“NISPOM”), the U.S. Government will not award contracts to companies determined to be under FOCI, where a
DoD Facility Security Clearance, or FCL, is required, unless certain “mitigation” measures are put in place. The
purpose of the FOCI mitigation measures is to protect cleared U.S. defense contractors against improper FOCI.
We have been cleared to the “Secret” level under an SSA, which is one of the recognized FOCI mitigation
measures under the NISPOM. As a cleared entity, we must comply with the requirements of our SSA, the NISPOM
and any other applicable U.S. Government industrial security regulations. Failure to follow the requirements of the
SSA, the NISPOM or any other applicable U.S. Government industrial security regulations could, among other
things, result in termination of our FCL, which in turn would preclude us from being awarded classified contracts or,
under certain circumstances, performing on our existing classified contracts.
Governmental Regulations
The commercial aircraft component industry is highly regulated by both the FAA in the United States, the Joint
Aviation Authority, or JAA, in Europe and other agencies throughout the world. The military aircraft component
industry is governed by military quality specifications. We, and the components we manufacture, are required to be
certified by one or more of these entities or agencies, and, in some cases, by individual OEMs, to engineer and
service parts and components used in specific aircraft models.
We must also satisfy the requirements of our customers, including OEMs and airlines that are subject to FAA
regulations, and provide these customers with products and services that comply with the government regulations
applicable to commercial flight operations. In addition, the FAA requires that various maintenance routines be
performed on aircraft components. We believe that we currently satisfy or exceed these maintenance standards in
our repair and overhaul services. We also maintain several FAA-approved repair stations.
The technical data and components used in the design and production of our products, as well as many of the
products and technical data we export, either as individual items or as components incorporated into aircraft, are
subject to compliance with U.S. export control laws. Collaborative agreements that we may have with foreign
persons, including manufacturers or suppliers, are also subject to U.S. export control laws.
Our operations are also subject to a variety of worker and community safety laws. The Occupational Safety and
Health Act, or OSHA, mandates general requirements for safe workplaces for all employees. In addition, OSHA
provides special procedures and measures for the handling of certain hazardous and toxic substances. Our
management believes that our operations are in material compliance with OSHA’s health and safety requirements.
Available Information
Our Internet address is www.spiritaero.com. The content on our website is available for information purposes
only. It should not be relied upon for investment purposes, nor is it incorporated by reference into this Annual
Report.
We make available through our Internet website under the heading “Investor Relations”, our Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and amendments to
those reports after we electronically files them with the Securities and Exchange Commission (“SEC”). Copies of
our key corporate governance documents, including its Corporate Governance Guidelines, Code of Ethics and
Business Conduct, and charters for our Audit Committee, Compensation Committee and Corporate Governance
and Nominating Committee are also available on our website.
Our filed Annual and Quarterly Reports, Proxy Statement and other reports previously filed with the SEC are also
available to the public through the SEC’s website at http://www.sec.gov. Materials we file with the SEC may also be read
and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington D.C. 20549. Information on the
operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
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Item 1A. Risk Factors
An investment in our securities involves risk and uncertainties. The risks and uncertainties set forth below are
those that we currently believe may materially and adversely affect us, our future business or results of operations,
or investments in our securities. Additional risks and uncertainties that we are unaware of or that we currently deem
immaterial may also materially and adversely affect us, our future business or results of operations, or investments
in our securities.
Risk Factors Related to Our Business and Industry
Our commercial business is cyclical and sensitive to commercial airlines’ profitability. The business of
commercial airlines is, in turn, affected by global economic conditions and geo-political considerations.
We compete in the aerostructures segment of the aerospace industry. Our customers’ business, and therefore
our own, is directly affected by the financial condition of commercial airlines and other economic factors, including
global economic conditions and geo-political considerations that affect the demand for air transportation. Specifically, our commercial business is dependent on the demand from passenger airlines and cargo carriers for the
production of new aircraft. Accordingly, demand for our commercial products is tied to the worldwide airline
industry’s ability to finance the purchase of new aircraft and the industry’s forecasted demand for seats, flights,
routes and cargo capacity. Similarly, the size and age of the worldwide commercial aircraft fleet affects the demand
for new aircraft and, consequently, for our products. Such factors, in conjunction with evolving economic
conditions, cause the market in which we operate to be cyclical to varying degrees, thereby affecting our business
and operating results.
Near-term challenges to our customers include sovereign debt default, economic weakness in the airline
industry and the continuing volatility in global credit markets (which contributed to widespread economic
slowdown, restricted discretionary spending, inability to finance airplane purchases, and a slowdown in air traffic).
Possible exogenous shocks such as expanding conflicts or political unrest in the Middle East or Asia, renewed
terrorist attacks against the industry, or pandemic health crises have the potential to cause precipitous declines in air
traffic. Any protracted economic slump, continued adverse credit market conditions, future terrorist attacks, war or
health concerns could cause airlines to cancel or delay the purchase of additional new aircraft which could result in a
deterioration of commercial airplane backlogs. If demand for new aircraft decreases, there would likely be a
decrease in demand for our commercial aircraft products, and our business, financial condition and results of
operations could be materially adversely affected.
Our business could be materially adversely affected if one of our components causes an aircraft accident.
Our operations expose us to potential liabilities for personal injury or death as a result of the failure of an
aircraft component that has been designed, manufactured or serviced by us or our suppliers. While we believe that
our liability insurance is adequate to protect us from future product liability claims, it may not be adequate. Also, we
may not be able to maintain insurance coverage in the future at an acceptable cost. Any such liability not covered by
insurance or for which third-party indemnification is not available could require us to dedicate a substantial portion
of our cash flows to make payments on such liability, which could have a material adverse effect on our business,
financial condition and results of operations.
An accident caused by one of our components could also damage our reputation for quality products. We
believe our customers consider safety and reliability as key criteria in selecting a provider of aerostructures. If an
accident were to be caused by one of our components, or if we were to otherwise fail to maintain a satisfactory
record of safety and reliability, our ability to retain and attract customers could be materially adversely affected.
Our business could be materially adversely affected by product warranty obligations.
Our operations expose us to potential liability for warranty claims made by customers or third parties with
respect to aircraft components that have been designed, manufactured, or serviced by us or our suppliers. Material
product warranty obligations could have a material adverse effect on our business, financial condition and results of
operations.
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Because we depend on Boeing and, to a lesser extent, Airbus, as our largest customers, our sales, cash
flows from operations and results of operations will be negatively affected if either Boeing or Airbus
reduces the number of products it purchases from us or if either experiences business difficulties.
Currently, Boeing is our largest customer and Airbus is our second-largest customer. For the twelve months
ended December 31, 2010, approximately 83% and 11% of our net revenues were generated from sales to Boeing
and Airbus, respectively. Although our strategy, in part, is to diversify our customer base by entering into supply
arrangements with additional customers, we cannot give any assurance that we will be successful in doing so. Even
if we are successful in obtaining and retaining new customers, we expect that Boeing and, to a lesser extent, Airbus,
will continue to account for a substantial portion of our sales for the foreseeable future. Although we are a party to
various supply contracts with Boeing and Airbus which obligate Boeing and Airbus to purchase all of their
requirements for certain products from us, those agreements generally do not require specific minimum purchase
volumes. In addition, if we breach certain obligations under these supply agreements and Boeing or Airbus
exercises its right to terminate such agreements, our business will be materially adversely affected. Boeing and
Airbus have the contractual right to cancel their supply agreements with us for convenience, which could include
the termination of one or more aircraft models or programs for which we supply products. Although Boeing and
Airbus would be required to reimburse us for certain expenses, there can be no assurance these payments would
adequately cover our expenses or lost profits resulting from the termination. In addition, we have agreed to a
limitation on recoverable damages if Boeing wrongfully terminates our main supply agreement with respect to any
model or program. If this occurs, we may not be able to recover the full amount of our actual damages. Furthermore,
if Boeing or Airbus (1) experiences a decrease in requirements for the products which we supply to it; (2) experiences a major disruption in its business, such as a strike, work stoppage or slowdown, a supply-chain problem or a
decrease in orders from its customers; or (3) files for bankruptcy protection; our business, financial condition and
results of operations could be materially adversely affected.
Our largest customer, Boeing, operates in a very competitive business environment.
Boeing operates in a highly competitive industry. Competition from Airbus, Boeing’s main competitor, as well
as from regional jet makers, has intensified as these competitors expand aircraft model offerings and competitively
price their products. As a result of this competitive environment, Boeing continues to face pressure on product
offerings and sale prices. While we do have supply agreements with Airbus, we currently have substantially more
business with Boeing and thus any adverse effect on Boeing’s production of aircraft resulting from this competitive
environment may have a material adverse effect on our business, financial condition and results of operations.
Our business depends, in large part, on sales of components for a single aircraft program, the B737.
For the twelve months ended December 31, 2010, approximately 54% of our net revenues were generated from
sales of components to Boeing for the B737 aircraft. While we have entered into long-term supply agreements with
Boeing to continue to provide components for the B737 for the life of the aircraft program, including commercial
and the military P-8A Poseidon derivatives, Boeing does not have any obligation to purchase components from us
for any replacement for the B737 that is not a commercial derivative model. Boeing has publicly announced its
intention to develop a next-generation single-aisle aircraft program to replace the B787. If Boeing develops a nextgeneration aircraft program to replace the B737 which is not a commercial derivative, we may not have the nextgeneration technology, engineering and manufacturing capability necessary to obtain significant aerostructures
supply business for the replacement program, may not be able to provide components for the replacement program
at competitive prices or, for other reasons, may not be engaged by Boeing to the extent of our involvement in the
B737 or at all. If we were unable to obtain significant aerostructures supply business for any B737 replacement
program, our business, financial condition and results of operations could be materially adversely affected.
The profitability of the B787 program depends significantly on the assumptions surrounding a
satisfactory settlement of assertions.
Due to the nature of the work performed related to the B787, we regularly commence work or incorporate
customer requested changes prior to negotiating pricing terms for the engineering work or the product which has
been modified. We have the legal right to negotiate pricing for customer directed changes. We assert to our
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customers our contractual rights to obtain the additional revenue or cost reimbursement we expect to receive upon
finalizing pricing terms. An expected recovery value of these assertions is incorporated into our contract
profitability estimates when applying contract accounting. Our inability to recover these expected values, among
other factors, could result in the recognition of a forward loss on the B787 program and could have a material
adverse effect on our results of operations.
Our business depends, in part, on the success of a new model aircraft, the B787.
The success of our business will depend, in part, on the success of Boeing’s new B787 program. We have
entered into supply agreements with Boeing pursuant to which we are a Tier 1 supplier to the B787 program. We
have made and will continue to make a significant investment in this program before the first commercial delivery
of a B787 jetliner. Following program delays, on December 15, 2009, Boeing completed the first flight of the B787
jetliner. This was followed by the completion of initial airworthiness testing on January 15, 2010. On November 11,
2010, Boeing announced the postponement of further flight test activities on the B787, following the occurrence of
an onboard electrical fire on a November 10, 2010 test flight. Boeing developed software system and other upgrades
in response to that occurrence. We anticipate, based on public announcements by Boeing, that Boeing will
commence commercial deliveries on the B787 in approximately the third quarter of 2011. We are in the process of
evaluating the impact of the revised schedule on our business. We have temporarily shifted employees from the
B787 program to work on other programs. Amounts capitalized into inventory represent our primary working
capital exposure to the B787 delays. Given the low margins we currently project in our first contract accounting
block, if Boeing is unable to meet currently anticipated production levels or if we are not able to achieve the cost
reductions we expect, successfully implement customer driven engineering changes, or successfully complete
contract negotiations, including assertions, we could eventually need to recognize a forward loss in our current
contract accounting block. Any additional delays in the B787 program, including delays in negotiations of certain
contractual matters with Boeing, could further impact our cash flows from operations and could materially
adversely affect our business, financial condition and results of operations.
We may be required to repay Boeing up to approximately $1,023.3 million of advance payments and
deferred revenue made to us by Boeing related to the B787 Supply Agreement. The advances may be
repaid in the event that Boeing does not take delivery of a sufficient number of ship sets prior to the
termination of the aircraft program. The deferred revenue may be repaid if a final contract amendment is
not reached during the first half of 2011.
We are required to repay Boeing a 2007 interest free cash advance of $700 million, in the amount of a
$1.4 million offset against the purchase price of each of the first five hundred B787 ship sets delivered to Boeing. In
the event that Boeing does not take delivery of five hundred B787 ship sets by the end of the aircraft program, any
advances not then repaid will first be applied against any outstanding B787 payments then due by Boeing to us, with
any remaining balance to be repaid at the rate of $84.0 million per year beginning in the year in which we deliver our
final B787 production ship set to Boeing, prorated for the remaining portion of the year in which we make our final
delivery.
to us, with any remaining balance repaid beginning in the year in which we deliver our final B787 production ship
set to Boeing, with the full amount to be repaid no later than the end of the subsequent year.
things, require Boeing to make additional advances to Spirit. These additional advances are paid to Spirit quarterly,
in amounts determined pursuant to pricing provisions set forth in the agreement, and will be recovered over future
units. In the event that Boeing does not take delivery of a sufficient number of ship sets to recover these additional
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advances by the end of 2021, Spirit would be required to repay any outstanding balance in six equal annual
installments. The advance payments have been made to Spirit quarterly since August 2009.
In December 2010, Spirit and Boeing entered into a memorandum of agreement and a settlement agreement.
As part of these agreements, Spirit received a payment in December which has been recorded as deferred
revenue (short-term) within the consolidated balance sheet pending finalization of a contract amendment which
would contain the final settlement terms for claims under the B787 contract between Spirit and Boeing. If the final
contract amendment is not agreed to by the second quarter of 2011, Boeing may require reimbursement or set-off of
the payment over a short or long-term period of time. This final amendment may contain provisions that alter the
current structure of repayment for the advances described in this risk factor.
Accordingly, portions of the advance repayment liability are included as current and long-term liabilities in our
consolidated balance sheet. As of December 31, 2010, the amount of advance payments and deferred revenue made
to us by Boeing under the B787 Supply Agreement and not yet repaid or recognized as revenue was approximately
$1,023.3 million.
We incur risk associated with new programs.
New programs with new technologies typically carry risks associated with design responsibility, development
of new production tools, hiring and training of qualified personnel, increased capital and funding commitments,
ability to meet customer specifications, delivery schedules and unique contractual requirements, supplier performance, ability of the customer to meet its contractual obligations to us, and our ability to accurately estimate costs
associated with such programs. In addition, any new aircraft program may not generate sufficient demand or may
experience technological problems or significant delays in the regulatory certification or manufacturing and
delivery schedule. If we were unable to perform our obligations under new programs to the customer’s satisfaction,
if we were unable to manufacture products at our estimated costs, or if a new program in which we had made a
significant investment was terminated or experienced weak demand, delays or technological problems, our
business, financial condition and results of operations could be materially adversely affected. This risk includes
the potential for default, quality problems, or inability to meet weight requirements and could result in low margin
or forward loss contracts, and the risk of having to write-off inventory if it were deemed to be unrecoverable over the
life of the program. In addition, beginning new work on existing programs also carries risks associated with the
transfer of technology, knowledge and tooling.
In order to perform on new programs we may be required to construct or acquire new facilities requiring
additional up-front investment costs. In the case of significant program delays and/or program cancellations, for the
costs that are not recoverable, we could be required to bear the construction and maintenance costs and incur
potential impairment charges for the new facilities. Also, we may need to expend additional resources to determine
an alternate revenue-generating use for the facilities. Likewise, significant delays in the construction or acquisition
of a plant site could impact production schedules.
Our operations depend on our ability to maintain continuing, uninterrupted production at our
manufacturing facilities. Our production facilities are subject to physical and other risks that could
disrupt production.
Our manufacturing facilities could be damaged or disrupted by a natural disaster, war, terrorist activity or
sustained mechanical failure. Although we have obtained property damage and business interruption insurance, a
major catastrophe, such as a fire, flood, tornado or other natural disaster at any of our sites, war or terrorist activities
in any of the areas where we conduct operations or the sustained mechanical failure of a key piece of equipment
could result in a prolonged interruption of all or a substantial portion of our business. Any disruption resulting from
these events could cause significant delays in shipments of products and the loss of sales and customers and we may
not have insurance to adequately compensate us for any of these events. A large portion of our operations takes
place at one facility in Wichita, Kansas and any significant damage or disruption to this facility in particular would
materially adversely affect our ability to service our customers.
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Future commitments to our customers to increase production rates depend on our ability to expand
production at our manufacturing facilities.
Boeing and Airbus, our two largest customers, have both announced planned production rate increases for
several of their major programs. In some cases, in order to meet these increases in production rates, we will need to
make significant capital expenditures to expand our capacity and improve our performance. While some of these
expenditures will be reimbursed by our customers, we could be required to bear a significant portion of the costs. In
addition, the increases in production rates could cause disruptions in our manufacturing lines, which could
materially adversely impact our ability to meet our commitments to our customers, and have a resulting adverse
effect on our financial condition and results of operations.
We operate in a very competitive business environment.
Competition in the aerostructures segment of the aerospace industry is intense. Although we have entered into
supply agreements with Boeing and Airbus under which we are their exclusive supplier for certain aircraft parts, we
will face substantial competition from both OEMs and non-OEM aerostructures suppliers in trying to expand our
customer base and the types of parts we make.
OEMs may choose not to outsource production of aerostructures due to, among other things, their own direct
labor and other overhead considerations and capacity utilization at their own facilities. Consequently, traditional
factors affecting competition, such as price and quality of service, may not be significant determinants when OEMs
decide whether to produce a part in-house or to outsource.
Our principal competitors among aerostructures suppliers are Aircelle S.A., Alenia Aeronautica, Fuji Heavy
Industries, Ltd., GKN Aerospace, The Goodrich Corporation, Kawasaki Heavy Industries, Inc., Mitsubishi Heavy
Industries, Saab AB, Snecma, Triumph Group, Inc., Latecoere S.A., Aerolia SAS, Premium Aerotech GmbH and
Nexcelle. Some of our competitors have greater resources than we do and, therefore, may be able to adapt more
quickly to new or emerging technologies and changes in customer requirements, or devote greater resources to the
promotion and sale of their products than we can. Additionally, as part of its Power 8 restructuring plan, Airbus and
its parent company EADS have formed wholly-owned French (Aerolia) and German (Premium Aerotech)
subsidiaries for potential sale to third parties in 2012. If these facilities are sold, or otherwise attempt to obtain
work from third parties, the facilities could become competitors of Spirit. Providers of aerostructures have
traditionally competed on the basis of cost, technology, quality and service. We believe that developing and
maintaining a competitive advantage will require continued investment in product development, engineering,
supply-chain management and sales and marketing, and we may not have enough resources to make such
investments. For these reasons, we may not be able to compete successfully in this market or against such
competitors, which could have a material adverse effect on our business, financial condition and results of
operations.
High switching costs may substantially limit our ability to obtain business that is currently under contract
with other suppliers.
Once a contract is awarded by an OEM to an aerostructures supplier, the OEM and the supplier are typically
required to spend significant amounts of time and capital on design, manufacture, testing and certification of tooling
and other equipment. For an OEM to change suppliers during the life of an aircraft program, further testing and
certification would be necessary, and the OEM would be required either to move the tooling and equipment used by
the existing supplier for performance under the existing contract, which may be expensive and difficult (or
impossible), or to manufacture new tooling and equipment. Accordingly, any change of suppliers would likely
result in production delays and additional costs to both the OEM and the new supplier. These high switching costs
may make it more difficult for us to bid competitively against existing suppliers and less likely that an OEM will be
willing to switch suppliers during the life of an aircraft program, which could materially adversely affect our ability
to obtain new work on existing aircraft programs.
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Because of our limited operating history, our historical financial statements do not reflect the impact of
an extended market downturn on our financial condition and results of operations.
Our historical financial statements are not indicative of how we would operate through an extended market
downturn. Since the Boeing Acquisition and until the latter part of 2008, we had operated in a market experiencing
an upturn; however, from the latter part of 2008 through 2009, we operated during a period of a deep economic
recession. As previously mentioned, net orders and delivery rates are nearly even for 2010, yielding stable backlog
quantities. In 2005, Boeing and Airbus experienced record aggregate annual airplane orders, followed in 2006 with
aggregate annual order totals that, at the time, were the second highest ever. Aggregate annual orders, net of
cancellations, remained strong in 2007 at 2,754. However, aggregate annual orders, net of cancellations, decreased
to 1,439 in 2008 and 413 in 2009. In 2010 orders, net of cancellations, were 1,104. Our financial results from this
limited history provide little indication of our ability to operate in a market experiencing significantly lower demand
for our products and the products of our customers. As such, we cannot give any assurance that we will be able to
successfully operate in such a market at historical profitability levels or at all.
Increases in labor costs, potential labor disputes and work stoppages at our facilities or the facilities of
our suppliers or customers could materially adversely affect our financial performance.
Our financial performance is affected by the availability of qualified personnel and the cost of labor. A
majority of our workforce is represented by unions. If our workers were to engage in a strike, work stoppage or other
slowdown, we could experience a significant disruption of our operations, which could cause us to be unable to
deliver products to our customers on a timely basis and could result in a breach of our supply agreements. This could
result in a loss of business and an increase in our operating expenses, which could have a material adverse effect on
our business, financial condition and results of operations. In addition, our non-unionized labor force may become
subject to labor union organizing efforts, which could cause us to incur additional labor costs and increase the
related risks that we now face.
We have agreed with Boeing to continue to operate substantial manufacturing operations in Wichita, Kansas
until at least June 16, 2015 and we have other commitments to keep major programs in Wichita until 2020 in certain
circumstances. This may prevent us from being able to offer our products at prices that are competitive in the
marketplace and could have a material adverse effect on our ability to generate new business.
In addition, many aircraft manufacturers, airlines and aerospace suppliers have unionized work forces. Any
strikes, work stoppages or slowdowns experienced by aircraft manufacturers, airlines or aerospace suppliers could
reduce our customers’ demand for additional aircraft structures or prevent us from completing production of our
aircraft structures.
While we have successfully negotiated new contracts in 2009 and 2010 with three of the five unions that
represent our U.S. employees, all of which are long-term ten-year agreements, our collective bargaining agreement
with another union, which represents approximately 18% of our U.S. workforce, will expire in the third quarter of
2011. See “Business — Employees.” We cannot give any assurance that we will be able to negotiate new collective
bargaining agreements with our unions, on commercially reasonable terms or at all. If we are unable to successfully
negotiate new collective bargaining agreements, or if we enter into new collective bargaining agreements on terms
which are less favorable to us than our existing agreements, our operating expenses could increase, which could
have a material adverse effect on our business, financial condition and results of operations.
Our business may be materially adversely affected if we lose our government, regulatory or industry
approvals, if more stringent government regulations are enacted, or if industry oversight is increased.
The FAA prescribes standards and qualification requirements for aerostructures, including virtually all
commercial airline and general aviation products, and licenses component repair stations within the United States.
Comparable agencies, such as the Joint Aviation Authorities (“JAA”) in Europe, regulate these matters in other
countries. If we fail to qualify for or obtain a required license for one of our products or services or lose a
qualification or license previously granted, the sale of the subject product or service would be prohibited by law
until such license is obtained or renewed and our business, financial condition and results of operations could be
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materially adversely affected. In addition, designing new products to meet existing regulatory requirements and
retrofitting installed products to comply with new regulatory requirements can be expensive and time consuming.
From time to time, the FAA, the JAA or comparable agencies propose new regulations or changes to existing
regulations. These changes or new regulations generally increase the costs of compliance. To the extent the FAA,
the JAA or comparable agencies implement regulatory changes, we may incur significant additional costs to
achieve compliance.
In addition, certain aircraft repair activities we intend to engage in may require the approval of the aircraft’s
OEM. Our inability to obtain OEM approval could materially restrict our ability to perform such aircraft repair
activities.
We are subject to regulation of our technical data and goods under U.S. export control laws.
As a manufacturer and exporter of defense and dual-use technical data and commodities, we are subject to
U.S. laws and regulations governing international trade and exports, including, but not limited to, the International
Traffic in Arms Regulations, administered by the U.S. Department of State, and the Export Administration
Regulations, administered by the U.S. Department of Commerce. Collaborative agreements that we may have with
foreign persons, including manufacturers and suppliers, are also subject to U.S. export control laws. In addition, we
are subject to trade sanctions against embargoed countries, administered by the Office of Foreign Assets Control
within the U.S. Department of the Treasury.
A determination that we have failed to comply with one or more of these export controls or trade sanctions
could result in civil or criminal penalties, including the imposition of fines upon us as well as the denial of export
privileges and debarment from participation in U.S. government contracts. Additionally, restrictions may be placed
on the export of technical data and goods in the future as a result of changing geopolitical conditions. Any one or
more of such sanctions could have a material adverse effect on our business, financial condition and results of
operations.
Our business is subject to regulation in the United States and internationally.
The manufacturing of our products is subject to numerous federal, state and foreign governmental regulations.
The number of laws and regulations that are being enacted or proposed by state, federal and international
governments and authorities are increasing. Compliance with these regulations is difficult and expensive. If we fail
to adhere, or are alleged to have failed to adhere, to any applicable federal, state or foreign laws or regulations, or if
such laws or regulations negatively affect sales of our products, our business, prospects, results of operation,
financial condition or cash flows may be adversely affected. In addition, our future results could be adversely
affected by changes in applicable federal, state and foreign laws and regulations, or the interpretation or
enforcement thereof, including those relating to manufacturing processes, product liability, trade rules and customs
regulations, intellectual property, consumer laws, privacy laws, as well as accounting standards and taxation
requirements (including tax-rate changes, new tax laws and revised tax law interpretations).
We are subject to environmental, health and safety regulations and our ongoing operations may expose
us to related liabilities.
Our operations are subject to extensive regulation under environmental, health and safety laws and regulations
in the United States and other countries in which we operate. We may be subject to potentially significant fines or
penalties, including criminal sanctions, if we fail to comply with these requirements. We have made, and will
continue to make, significant capital and other expenditures to comply with these laws and regulations. We cannot
predict with certainty what environmental legislation will be enacted in the future or how existing laws will be
administered or interpreted. Our operations involve the use of large amounts of hazardous substances and regulated
materials and generate many types of wastes, including emissions of hexavalent chromium and volatile organic
compounds, and so-called greenhouse gases such as carbon dioxide. Spills and releases of these materials may
subject us to clean-up liability for remediation and claims of alleged personal injury, property damage and damage
to natural resources, and we may become obligated to reduce our emissions of hexavalent chromium, volatile
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organic compounds and/or greenhouse gases. We cannot give any assurance that the aggregate amount of future
remediation costs and other environmental liabilities will not be material.
Boeing, our predecessor at the Wichita facility, is under an administrative consent order issued by the Kansas
Department of Health and Environment to contain and remediate contaminated groundwater which underlies a
majority of the site. Pursuant to this order and its agreements with us, Boeing has a long-term remediation plan in
place, and treatment, containment and remediation efforts are underway. If Boeing does not comply with its
obligations under the order and these agreements, we may be required to undertake such efforts and make material
expenditures.
In connection with the BAE Acquisition, we acquired a manufacturing facility in Prestwick, Scotland that is
adjacent to contaminated property retained by BAE Systems. The contaminated property may be subject to a
regulatory action requiring remediation of the land. It is also possible that the contamination may spread into the
property we acquired. BAE Systems has agreed to indemnify us, subject to certain contractual limitations and
conditions, for certain clean up costs and other losses, liabilities, expenses and claims related to existing pollution
on the acquired property, existing pollution that migrates from the acquired property to a third party’s property and
any pollution that migrates to our property from property retained by BAE Systems. If BAE Systems does not
comply with its obligations under the agreement, we may be required to undertake such efforts and make material
expenditures.
In the future, contamination may be discovered at or emanating from our facilities or at off-site locations where
we send waste. The remediation of such newly discovered contamination, related claims for personal injury or
damages, or the enactment of new laws or a stricter interpretation of existing laws, may require us to make
additional expenditures, some of which could be material. See “Business — Environmental Matters.”
Significant consolidation in the aerospace industry could make it difficult for us to obtain new business.
Suppliers in the aerospace industry have consolidated and formed alliances to broaden their product and
integrated system offerings and achieve critical mass. This supplier consolidation is in part attributable to aircraft
manufacturers more frequently awarding long-term sole-source or preferred supplier contracts to the most capable
suppliers, thus reducing the total number of suppliers. If this consolidation were to continue, it may become more
difficult for us to be successful in obtaining new customers.
We may be materially adversely affected by high fuel prices.
Due to the competitive nature of the airline industry, airlines are often unable to pass on increased fuel prices to
customers by increasing fares. Fluctuations in the global supply of crude oil and the possibility of changes in
government policy on jet fuel production, transportation and marketing make it difficult to predict the future
availability of jet fuel. In the event there is an outbreak or escalation of hostilities or other conflicts, or significant
disruptions in oil production or delivery in oil-producing areas or elsewhere, there could be reductions in the
production or importation of crude oil and significant increases in the cost of fuel. If there were major reductions in
the availability of jet fuel or significant increases in its cost, the airline industry and, as a result, our business, could
be materially adversely affected.
Interruptions in deliveries of components or raw materials, or increased prices for components or raw
materials used in our products could delay production and/or materially adversely affect our financial
performance, profitability, margins and revenues.
We are highly dependent on the availability of essential materials and purchased components from our
suppliers, some of which are available only from a sole source or limited sources. Our dependency upon regular
deliveries from particular suppliers of components and raw materials means that interruptions or stoppages in such
deliveries could materially adversely affect our operations until arrangements with alternate suppliers, to the extent
alternate suppliers exist, could be made. If any of our suppliers were unable or refused to deliver materials to us for
an extended period of time, or if we were unable to negotiate acceptable terms for the supply of materials with these
or alternative suppliers, our business could suffer.
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Moreover, we are dependent upon the ability of our suppliers to provide materials and components that meet
specifications, quality standards and delivery schedules. Our suppliers’ failure to provide expected raw materials or
component parts that meet our technical specifications could adversely affect production schedules and contract
profitability. We may not be able to find acceptable alternatives, and any such alternatives could result in increased
costs for us and possible forward losses on certain contracts. Even if acceptable alternatives are found, the process of
locating and securing such alternatives might be disruptive to our business and might lead to termination of our
supply agreements with our customers.
Our continued supply of materials is subject to a number of risks including:
• the destruction of our suppliers’ facilities or their distribution infrastructure;
• a work stoppage or strike by our suppliers’ employees;
• the failure of our suppliers to provide materials of the requisite quality or in compliance with specifications;
• the failure of essential equipment at our suppliers’ plants;
• the failure of our suppliers to satisfy U.S. and international import and export control laws for goods that we
purchase from such suppliers;
• the failure of suppliers to meet regulatory standards;
• the failure, shortage or delays in the delivery of raw materials to our suppliers;
• contractual amendments and disputes with our suppliers; and
• inability of suppliers to perform as a result of the weakened global economy or otherwise.
In addition, our profitability is affected by the prices of the components and raw materials, such as titanium,
aluminum and carbon fiber, used in the manufacturing of our products. These prices may fluctuate based on a
number of factors beyond our control, including world oil prices, changes in supply and demand, general economic
conditions, labor costs, competition, import duties, tariffs, currency exchange rates and, in some cases, government
regulation. Although our supply agreements with Boeing and Airbus allow us to pass on certain unusual increases in
component and raw material costs in limited situations, we may not be fully compensated by the customer for the
entirety of any such increased costs.
Our business will suffer if certain key officers or employees discontinue employment with us or if we are
unable to recruit and retain highly skilled staff.
The success of our business is highly dependent upon the skills, experience and efforts of our President and
Chief Executive Officer, Jeffrey Turner, and certain of our other key officers and employees. As the top executive
officer of Boeing Wichita for almost ten years prior to the Boeing Acquisition, Mr. Turner gained extensive
experience in running our business and long-standing relationships with many high-level executives at Boeing, our
largest customer. We believe Mr. Turner’s reputation in the aerospace industry and relationship with Boeing are
critical elements in maintaining and expanding our business. The loss of Mr. Turner or other key personnel could
have a material adverse effect on our business, operating results or financial condition. Our business also depends on
our ability to continue to recruit, train and retain skilled employees, particularly skilled engineers. The market for
these resources is highly competitive. We may be unsuccessful in attracting and retaining the engineers we need
and, in such event, our business could be materially adversely affected. The loss of the services of any skilled key
personnel, or our inability to hire new personnel with the requisite skills, could impair our ability to provide
products to our customers or manage our business effectively.
We are subject to the requirements of the National Industrial Security Program Operating Manual
(“NISPOM”) for our Facility Security Clearance (“FCL”), which is a prerequisite for our ability to
perform on classified contracts for the U.S. Government.
A Department of Defense (“DOD”) FCL is required for a company to be awarded and perform on classified
contracts for the DOD and certain other agencies of the U.S. Government. From time to time we have performed and
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may perform on classified contracts, although we did not generate any revenues from classified contracts for the
twelve months ended December 31, 2010. We have obtained an FCL at the “Secret” level. Due to the fact that more
than 50% of our voting power is effectively controlled by a non-U.S. entity (i.e., Onex), we are required to operate in
accordance with the terms and requirements of our Special Security Agreement (“SSA”) with the DOD. If we were
to violate the terms and requirements of our SSA, the NISPOM, or any other applicable U.S. Government industrial
security regulations, we could lose our FCL. We cannot give any assurance that we will be able to maintain our FCL.
If for some reason our FCL is invalidated or terminated, we may not be able to continue to perform our classified
contracts in effect at that time, and we would not be able to enter into new classified contracts, which could
adversely affect our revenues.
We derive a significant portion of our net revenues from direct and indirect sales outside the United States
and are subject to the risks of doing business in foreign countries.
We derive a significant portion of our revenues from sales by Boeing and Airbus to customers outside the
United States. In addition, for the twelve months ended December 31, 2010, direct sales to our non-U.S. customers
accounted for approximately 12% of our net revenues. We expect that our and our customers’ international sales
will continue to account for a significant portion of our net revenues for the foreseeable future. As a result, we are
subject to risks of doing business internationally, including:
• changes in regulatory requirements;
• domestic and foreign government policies, including requirements to expend a portion of program funds
locally and governmental industrial cooperation requirements;
• fluctuations in foreign currency exchange rates;
• the complexity and necessity of using foreign representatives and consultants;
• uncertainties and restrictions concerning the availability of funding credit or guarantees;
• imposition of tariffs and embargos, export controls and other trade restrictions;
• the difficulty of management and operation of an enterprise spread over various countries;
• compliance with a variety of foreign laws, as well as U.S. laws affecting the activities of U.S. companies
abroad, including the Foreign Corrupt Practices Act and other applicable anti-bribery laws; and
• economic and geopolitical developments and conditions, including international hostilities, acts of terrorism
and governmental reactions, inflation, trade relationships and military and political alliances.
While these factors or the effect of these factors are difficult to predict, adverse developments in one or more of
these areas could materially adversely affect our business, financial condition and results of operations in the future.
Our fixed-price contracts may commit us to unfavorable terms.
We provide most of our products and services through long-term contracts in which the pricing terms are fixed
based on certain production volumes. Accordingly, we bear the risk that we will not be able to sustain a cost
structure that is consistent with assumptions used in bidding on contracts. Increased or unexpected costs may reduce
our profit margins or cause us to sustain losses on these contracts. Other than certain increases in raw material costs
which can be passed on to our customers, we must fully absorb cost overruns, notwithstanding the difficulty of
estimating all of the costs we will incur in performing these contracts and in projecting the ultimate level of sales
that we may achieve. Our failure to anticipate technical problems, estimate delivery reductions, estimate costs
accurately or control costs during performance of a fixed-price contract may reduce the profitability of a contract or
cause a loss.
This risk particularly applies to products such as the Boeing B787, for which we had delivered thirty-one
production articles as of December 31, 2010 since the inception of the program, and in respect of which our
profitability at the contracted price depends on our being able to achieve production cost reductions as we gain
production experience. Pricing for the initial configuration of the B787-8, the base model currently in production, is
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generally established through 2021, with prices decreasing as cumulative volume levels are achieved. Prices are
subject to adjustment for abnormal inflation (above a specified level in any year) and for certain production,
schedule and other specific changes. When we negotiated the B787-8 pricing, we assumed that favorable trends in
volume, learning curve efficiencies and future pricing from suppliers would reduce our production costs over the
life of the B787 program, thus maintaining or improving our margin on each B787 we produced. We cannot give any
assurance that our development of new technologies or capabilities will be successful or that we will be able to
reduce our B787 production costs over the life of the program. Our failure to reduce production costs as we have
anticipated could result in decreasing margin on the B787 during the life of the program and the need to record a
forward loss for the current contract accounting block.
Many of our other production cost estimates also contain pricing terms which anticipate cost reductions over
time. In addition, although we have entered into these fixed price contracts with our customers, they may
nonetheless seek to re-negotiate pricing with us in the future. Any such higher costs or re-negotiations could
materially adversely affect our profitability, margins and revenues.
We face a class-action lawsuit which could potentially result in substantial costs, diversion of
management’s attention and resources, and negative publicity.
A lawsuit has been filed against Spirit, Onex, and Boeing alleging age discrimination in the hiring of
employees by Spirit when Boeing sold Boeing Wichita to Onex. The complaint was filed in U.S. District Court in
Wichita, Kansas and seeks class-action status, an unspecified amount of compensatory damages and more than
$1.5 billion in punitive damages. On June 30, 2010, the U.S. District Court granted defendants’ dispositive motions,
finding that the case should not be allowed to proceed as a class action. The plaintiffs could decide to appeal the
district court’s decision to the United States Court of Appeals for the Tenth Circuit, which could reverse the District
Court’s June 30 ruling. The Asset Purchase Agreement between Onex and Boeing relating to the Boeing
Acquisition requires Spirit to indemnify Boeing for its damages resulting from the employment decisions that
were made by us with respect to former employees of Boeing Wichita which relate or allegedly relate to the
involvement of, or consultation, with employees of Boeing in such employment decisions. The lawsuit could result
in substantial costs, divert management’s attention and resources from our operations and negatively affect our
public image and reputation. An unfavorable outcome or prolonged litigation related to these matters could
materially harm our business.
We are implementing new company-wide software systems, which could increase our information
technology expenditures and cause unexpected production delays.
We have recently implemented an Enterprise Resource Planning (“ERP”) software system in several of our
facilities, and have begun implementation of other system upgrades and infrastructure changes. We plan to
implement the ERP software in all of our primary facilities by the end of 2011. Our total expenditures for these
systems and upgrades could exceed the planned budget. In addition, unexpected problems with the implementation
could result in production or other delays.
We do not own most of the intellectual property and tooling used in our business.
Our business depends on using certain intellectual property and tooling that we have rights to use under license
grants from Boeing. These licenses contain restrictions on our use of Boeing intellectual property and tooling and
may be terminated if we default under certain of these restrictions. Our loss of license rights to use Boeing
intellectual property or tooling would materially adversely affect our business. In addition, we must honor our
contractual commitments to our other customers related to intellectual property and comply with infringement laws
governing our use of intellectual property. In the event we obtain new business from new or existing customers, we
will need to pay particular attention to these contractual commitments and any other restrictions on our use of
intellectual property to make sure that we will not be using intellectual property improperly in the performance of
such new business. In the event we use any such intellectual property improperly, we could be subject to an
infringement claim by the owner or licensee of such intellectual property. See “Business — Our Relationship with
Boeing — License of Intellectual Property.” In addition to the licenses with Boeing, Spirit licenses some of the
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intellectual property needed for performance under some of its supply contracts from its customers under those
supply agreements.
In the future, our entry into new markets may require obtaining additional license grants from Boeing and/or
from other third parties. If we are unable to negotiate additional license rights on acceptable terms (or at all) from
Boeing and/or other third parties as the need arises, our ability to enter new markets may be materially restricted. In
addition, we may be subject to restrictions in future licenses granted to us that may materially restrict our use of
third party intellectual property.
Our success depends in part on the success of our research and development initiatives.
We spent approximately $51.5 million on research and development during the twelve months ended
December 31, 2010. Our significant expenditures on our research and development efforts may not create any
new sales opportunities or increases in productivity that are commensurate with the level of resources invested.
We are in the process of developing specific technologies and capabilities in pursuit of new business and in
anticipation of customers going forward with new programs. If any such programs do not go forward or are not
successful, we may be unable to recover the costs incurred in anticipation of such programs and our profitability and
revenues may be materially adversely affected.
Any future business combinations, acquisitions, mergers, or joint ventures will expose us to risks,
including the risk that we may not be able to successfully integrate these businesses or achieve expected
operating synergies.
We actively consider strategic transactions from time to time. We evaluate acquisitions, joint ventures,
alliances and co-production programs as opportunities arise, and we may be engaged in varying levels of
negotiations with potential competitors at any time. We may not be able to effect transactions with strategic
alliance, acquisition or co-production program candidates on commercially reasonable terms or at all. If we enter
into these transactions, we also may not realize the benefits we anticipate. In addition, we may not be able to obtain
additional financing for these transactions. The integration of companies that have previously been operated
separately involves a number of risks, including, but not limited to:
• demands on management related to the increase in size after the transaction;
• the diversion of management’s attention from the management of daily operations to the integration of
operations;
• difficulties in the assimilation and retention of employees;
• difficulties in the assimilation of different cultures and practices, as well as in the assimilation of
geographically dispersed operations and personnel, who may speak different languages;
• difficulties combining operations that use different currencies or operate under different legal structures;
• difficulties in the integration of departments, systems (including accounting systems), technologies, books
and records and procedures, as well as in maintaining uniform standards, controls (including internal
accounting controls), procedures and policies;
• compliance with the Foreign Corrupt Practices Act and other applicable anti-bribery laws; and
• constraints (contractual or otherwise) limiting our ability to consolidate, rationalize and/or leverage supplier
arrangements to achieve integration.
Consummating any acquisitions, joint ventures, alliances or co-production programs could result in the
incurrence of additional debt and related interest expense, as well as unforeseen contingent liabilities.
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We could be required to make future contributions to our defined benefit pension and post-retirement
benefit plans as a result of adverse changes in interest rates and the capital markets.
Our estimates of liabilities and expenses for pensions and other post-retirement benefits incorporate significant
assumptions including the rate used to discount the future estimated liability, the long-term rate of return on plan
assets and several assumptions relating to the employee workforce (salary increases, medical costs, retirement age
and mortality). A dramatic decrease in the fair value of our plan assets resulting from movements in the financial
markets may cause the status of our plans to go from an over-funded status to an under-funded status and result in
cash funding requirements to meet any minimum required funding levels. Our results of operations, liquidity, or
shareholders’ equity in a particular period could be affected by a decline in the rate of return on plan assets, the rate
used to discount the future estimated liability, or changes in employee workforce assumptions.
Risk Factors Related to Our Capital Structure
The interests of our controlling stockholder may conflict with your interests.
Onex Partners LP, Onex Corporation and their respective partners and affiliates that beneficially own our
class B common stock, herein referred to collectively as the “Onex entities”, own 32,411,638 shares of our class B
common stock. Our class A common stock has one vote per share, while our class B common stock has ten votes per
share on all matters to be voted on by our stockholders. Consequently, the Onex entities control approximately 74%
of the combined voting power of our outstanding common stock. Accordingly, and for so long as the Onex entities
continue to hold class B common stock that represents at least 10% of the total number of shares of common stock
outstanding, Onex will exercise a controlling influence over our business and affairs and will have the power to
determine all matters submitted to a vote of our stockholders, including the election of directors and approval of
significant corporate transactions such as amendments to our certificate of incorporation, mergers and the sale of all
or substantially all of our assets. Onex could cause corporate actions to be taken even if the interests of Onex conflict
with the interests of our other stockholders. This concentration of voting power could have the effect of deterring or
preventing a change in control of Spirit that might otherwise be beneficial to our stockholders. Gerald W. Schwartz,
the Chairman, President and Chief Executive Officer of Onex Corporation, owns shares representing a majority of
the voting rights of the shares of Onex Corporation.
Our substantial debt could adversely affect our financial condition and our ability to operate our
business. The terms of the indenture governing our long-term bonds and our senior secured credit facility
impose significant operating and financial restrictions on our company and our subsidiaries, which could
also adversely affect our operating flexibility and put us at a competitive disadvantage by preventing us
from capitalizing on business opportunities.
As of December 31, 2010, we had total debt of approximately $1,196.8 million, including approximately
$566.1 million of borrowings under our senior secured credit facility, $594.2 million of long-term bonds, a
$18.2 million Malaysian loan, approximately $17.2 million of capital lease obligations, and $1.1 million in other
debt obligations. In addition to our debt, as of December 31, 2010, we had $42.0 million of letters of credit and
letters of guarantee outstanding.
The terms of the indentures governing our long-term bonds and our senior secured credit facility impose
significant operating and financial restrictions on us, which limit our ability, among other things, to:
• incur additional debt or issue preferred stock;
• pay dividends or make distributions to our stockholders;
• repurchase or redeem our capital stock;
• make investments;
• incur liens without granting equal and ratable liens to the holders of the notes;
• enter into transactions with our stockholders and affiliates;
• sell certain assets;
34
• acquire the assets of, or merge or consolidate with, other companies; and
• incur restrictions on the ability of our subsidiaries to make distributions or transfer assets to us.
These restrictions could have consequences, including the following:
• making it more difficult for us to satisfy our obligations with respect to our debt;
• limiting our ability to obtain additional financing to fund future working capital, capital expenditures,
strategic acquisitions or other general corporate requirements;
• requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other
purposes;
• increasing our vulnerability to general adverse economic and industry conditions;
• limiting our financial flexibility in planning for and reacting to changes in the industry in which we compete;
• placing us at a disadvantage compared to other, less leveraged competitors;
• having a material adverse effect on us if we fail to comply with the covenants in the indenture governing our
long-term bonds or in the instruments governing our other debt; and
• increasing our cost of borrowing.
Our existing senior secured revolving credit facility, which matures on September 30, 2014, is a significant
source of liquidity for our business. The failure to extend or renew this agreement could have a significant effect on
our ability to invest sufficiently in our programs, fund day to day operations, or pursue strategic opportunities.
We cannot assure you that we will be able to maintain compliance with the covenants in the agreements
governing our indebtedness in the future or, if we fail to do so, that we will be able to obtain waivers from the lenders
and/or amend the covenants.
In addition, despite the restrictions and limitations described above, subject to the limits contained in the
agreements governing our indebtedness, we may be able to incur additional debt from time to time to finance
working capital, capital expenditures, investments or acquisitions, or for other purposes. The terms of any future
indebtedness we may incur could include more restrictive covenants. If we incur additional debt, the risks related to
our high level of debt could intensify.
In addition, if we are unable to generate sufficient cash flow to service our debt and meet our other
commitments, we may need to refinance all or a portion of our debt, sell material assets or operations, or raise
additional debt or equity capital. We cannot provide assurance that we could effect any of these actions on a timely
basis, on commercially reasonable terms or at all, or that these actions would be sufficient to meet our capital
requirements. In addition, the terms of our existing or future debt agreements may restrict us from effecting certain
or any of these alternatives.
Global credit markets are still recovering from the 2008 financial crisis, and are subject to numerous risk
factors, including but not limited to concerns over sovereign debt in Europe and elsewhere; the impact and
effectiveness of new financial legislation and regulation in the United States and Europe; the impact of those
reforms on borrowers, financial institutions and credit rating agencies; potential systemic risk resulting from the
interrelationship of credit market products and participants; global governmental and central banking policies; and
conflict and political instability in the Middle East and Asia. There can be no assurance that access to credit markets
will continue to be available to us.
Any reduction in our credit ratings could materially and adversely affect our business or financial
condition.
On October 7, 2010, our corporate credit rating at Standard & Poor’s Rating Services was affirmed at BB and
our corporate credit rating at Moody’s Investor Services was upgraded to Ba2 from Ba3.
35
The ratings reflect the agencies’ assessment of our ability to pay interest and principal on our debt securities
and credit agreements. A rating is not a recommendation to purchase, sell or hold securities. Each rating is subject to
revision or withdrawal at any time by the assigning rating organization. Each rating agency has its own
methodology for assigning ratings and, accordingly, each rating should be considered independently of all other
ratings. Lower ratings would typically result in higher interest costs of debt securities when they are sold, and could
make it more difficult to issue future debt securities. In addition, a downgrade in our fixed or revolving long-term
debt rating could result in an increase in borrowing costs under our senior secured credit facility. Any downgrade in
our credit ratings could thus have a material adverse effect on our business or financial condition.
We may sell more equity and reduce your ownership in Spirit Holdings.
Our business plan may require the investment of new capital, which we may raise by issuing additional equity
(including equity interests which may have a preference over shares of our class A common stock) or additional debt
(including debt securities and/or bank loans). However, this capital may not be available at all, or when needed, or
upon terms and conditions favorable to us. The issuance of additional equity in Spirit Holdings may result in
significant dilution of shares of our class A common stock. We may issue additional equity in connection with or to
finance acquisitions. Further, our subsidiaries could issue securities in the future to persons or entities (including our
affiliates) other than us or another subsidiary. This could materially adversely affect your investment in us because it
would dilute your indirect ownership interest in our subsidiaries.
Spirit Holdings’ certificate of incorporation and by-laws and our supply agreements with Boeing contain
provisions that could discourage another company from acquiring us and may prevent attempts by our
stockholders to replace or remove our current management.
Provisions of Spirit Holdings’ certificate of incorporation and by-laws may discourage, delay or prevent a
merger or acquisition that stockholders may consider favorable, including transactions in which stockholders might
otherwise receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempts by
our stockholders to replace or remove our current management by making it more difficult for stockholders to
replace or remove our current board of directors. These provisions include:
• multi-vote shares of common stock, which are owned by the Onex entities and management stockholders;
• advance notice requirements for nominations for election to the board of directors or for proposing matters
that can be acted on by stockholders at stockholder meetings; and
• the authority of the board of directors to issue, without stockholder approval, up to 10 million shares of
preferred stock with such terms as the board of directors may determine and an additional 57,208,192 shares
of class A common stock (net of shares issued but subject to vesting requirements under our benefit plans and
shares reserved for issuance upon conversion of outstanding shares of class B common stock) and an
additional 114,409,506 shares of class B common stock (net of shares issued but subject to vesting
requirements under our benefit plans).
In addition, our supply agreements with Boeing include provisions giving Boeing the ability to terminate the
agreements in the event any of certain disqualified persons acquire a majority of Spirit’s direct or indirect voting
power or all or substantially all of Spirit’s assets. See “Business — Our Relationship with Boeing.”
Spirit Holdings is a “controlled company” within the meaning of the New York Stock Exchange rules
and, as a result, qualifies for, and relies on, exemptions from certain corporate governance requirements.
Because the Onex entities own more than 50% of the combined voting power of the common stock of Spirit
Holdings, Spirit Holdings is deemed a “controlled company” under the rules of the New York Stock Exchange, or
NYSE. As a result, Spirit Holdings qualifies for, and relies upon, the “controlled company” exception to the board
of directors and committee composition requirements under the rules of the NYSE. Pursuant to this exception,
Spirit Holdings is exempt from rules that would otherwise require that Spirit Holdings’ board of directors be
comprised of a majority of “independent directors” (as defined under the rules of the NYSE), and that Spirit
Holdings’ compensation committee and corporate governance and nominating committee be comprised solely of
36
“independent directors,” so long as the Onex entities continue to own more than 50% of the combined voting power
of the common stock of Spirit Holdings. Spirit Holdings’ board of directors consists of ten directors, six of whom
qualify as “independent.” Spirit Holdings’ compensation and corporate governance and nominating committees are
not comprised solely of “independent directors.” Spirit Holdings does not currently rely on the exemption related to
board composition, although it may do so in the future. See “Management — Executive Officers and Directors” and
“Committees of the Board of Directors.”
Our stock price may be volatile.
Price fluctuations in our class A common stock could result from general market and economic conditions and
a variety of other factors, including:
• actual or anticipated fluctuations in our operating results;
• changes in aerostructures pricing;
• our competitors’ and customers’ announcements of significant contracts, acquisitions or strategic
investments;
• changes in our growth rates or our competitors’ and customers’ growth rates;
• the timing or results of regulatory submissions or actions with respect to our business;
• our inability to finance or raise additional capital;
• conditions of the aerostructure industry, in the financial markets, or economic conditions in general; and
• changes in stock market analyst recommendations regarding our class A common stock, other comparable
companies or the aerospace industry in general.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
The location, primary use, approximate square footage and ownership status of our principal properties as of
December 31, 2010 are set forth below:
Location
United States
Wichita, Kansas(1)
Tulsa, Oklahoma
McAlester, Oklahoma
Kinston, North Carolina
United Kingdom
Prestwick, Scotland
Preston, England
Malaysia
Subang, Malaysia
France
Saint-Nazaire, France(2)
Toulouse, France
Primary Use
Approximate
Square Footage
Owned/Leased
Primary Manufacturing
Facility/Offices/Warehouse
Manufacturing Facility
Primary Manufacturing/Office/Warehouse
11.2 million Owned/Leased
1.9 million
135,000
638,900
Leased
Owned
Leased
Administrative Offices
1.1 million
16,275
Owned
Leased
Manufacturing
244,000
Leased
Primary Manufacturing/Office
Office
58,753
3,391
Leased
Leased
(1) 94% of the Wichita facility is owned.
(2) Operations are expected to begin in 2011.
Our physical assets consist of 15.3 million square feet of building space located on 1,334 acres in nine
facilities. We produce our fuselage systems and propulsion systems from our primary manufacturing facility
located in Wichita, Kansas and we produce wing systems in our manufacturing facilities in Tulsa, Oklahoma,
Kinston, North Carolina, Prestwick, Scotland, and Subang, Malaysia. In addition to these five sites, we have a
facility located in McAlester, Oklahoma primarily dedicated to supplying the Tulsa facility.
The Wichita facility, including Spirit’s corporate offices, is comprised of 640 acres, 6.2 million square feet of
manufacturing space, 1.4 million square feet of offices and laboratories for the engineering and design group and
3.6 million square feet for support functions and warehouses. A total of 604,715 square feet is currently vacant. The
Wichita site has access to transportation by rail, road and air. For air cargo, the Wichita site has access to the
runways of McConnell Air Force Base.
The Tulsa facility consists of 1.9 million square feet of building space set on 153 acres. The Tulsa plant is
located five miles from an international shipping port (Port of Catoosa) and is located next to the Tulsa International
Airport. The Tulsa facility includes off site leased space, 1.5 miles east in the Green Valley Center. The McAlester
site, which manufactures parts and sub-assemblies primarily for the Tulsa facility, consists of 135,000 square feet of
building space on 92 acres.
The Prestwick facility consists of 1.1 million square feet of building space, comprised of 0.8 million square feet of
manufacturing space, 0.2 million square feet of office space, and 0.1 million square feet of support and warehouse space.
This facility is set on 100 acres. The Prestwick plant is located on the west coast of Scotland, approximately 33 miles
south of Glasgow, within close proximity to the motorway network that provides access between England and
continental Europe. It is also easily accessible by air (at Prestwick International Airport) or by sea. We lease a portion
of our Prestwick facility to the Regional Aircraft division of BAE Systems and certain other tenants.
The Malaysian manufacturing plant is located at the Malaysia International Aerospace Center (MIAC) in
Subang. The 244,000 square foot leased facility is set on 45 acres and is centrally located with easy access to Kuala
Lumpur, Malaysia’s capital city, as well as nearby ports and airports. The facility became operational in the first
quarter of 2009 and assembles composite panels for wing components.
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The Wichita and Tulsa manufacturing facilities have significant scale to accommodate the very large structures
that are manufactured there, including, in Wichita, entire fuselages. Three of the U.S. facilities are in close
proximity, with approximately 175 miles between Wichita and Tulsa and 90 miles between Tulsa and McAlester.
Currently, these U.S. facilities utilize approximately 95% of the available building space. The Prestwick manufacturing facility currently utilizes only 63% of the space; of the remaining space, 21% is leased and 16% is vacant.
The Preston office space is located in North Lancashire, England, approximately 200 miles south of Prestwick.
In September 2008, we broke ground on a 585,000 square foot facility built on 304 acres in Kinston,
North Carolina. This facility, which supports the manufacturing of composite panels and wing components, was
completed in 2010. In addition, a 27,500 square foot office/warehouse is being leased to support receiving needs,
while a 26,400 square foot building is being leased for the purpose of tooling storage. Both buildings are leased from
the nearby Global TransPark Authority.
In July 2010, Spirit AeroSystems opened a new 58,000 square foot leased facility in Saint-Nazaire, France
built on 6.25 acres. The new facility will receive center fuselage frame sections for the Airbus A350 XWB from the
facility in Kinston, North Carolina. Sections designed and manufactured in North Carolina will be shipped across
the Atlantic, received in Saint-Nazaire, and assembled before being transported to Airbus. Operations in this facility
are expected to commence in early 2011. Additionally, a 3,391 square foot office area in Toulouse, France has been
leased since August 2009 for engineering support.
Item 3. Legal Proceedings
From time to time we are subject to, and are presently involved in, litigation or other legal proceedings arising
in the ordinary course of business. While the final outcome of these matters cannot be predicted with certainty,
considering, among other things, the meritorious legal defenses available, it is the opinion of the Company that none
of these items, when finally resolved, will have a material adverse effect on the Company’s long-term financial
position or liquidity. Consistent with the requirements of authoritative guidance on accounting for contingencies,
we had no accruals at December 31, 2010 or December 31, 2009 for loss contingencies. However, an unexpected
adverse resolution of one or more of these items could have a material adverse effect on the results of operations in a
particular quarter or fiscal year.
From time to time, in the ordinary course of business and like others in the industry, we receive requests for
information from government agencies in connection with their regulatory or investigational authority. Such
requests can include subpoenas or demand letters for documents to assist the government in audits or investigations.
We review such requests and notices and take appropriate action. We have been subject to certain requests for
information and investigations in the past and could be subject to such requests for information and investigations in
the future. Additionally, we are subject to federal and state requirements for protection of the environment,
including those for disposal of hazardous waste and remediation of contaminated sites. As a result, we are required
to participate in certain government investigations regarding environmental remediation actions.
In December 2005, a lawsuit was filed against Spirit, Onex, and Boeing alleging age discrimination in the hiring of
employees by Spirit when Boeing sold its Wichita commercial division to Onex. The complaint was filed in U.S. District
Court in Wichita, Kansas and seeks class-action status, an unspecified amount of compensatory damages and more than
$1.5 billion in punitive damages. The Asset Purchase Agreement requires Spirit to indemnify Boeing for damages
resulting from the employment decisions that were made by us with respect to former employees of Boeing Wichita,
which relate or allegedly relate to the involvement of, or consultation with, employees of Boeing in such employment
decisions. On June 30, 2010, the U.S. District Court granted defendants’ dispositive motions, finding that the case should
not be allowed to proceed as a class action. The plaintiffs have asked the Court to reconsider its ruling but the Court has
not yet ruled on that motion. Depending on the nature of that ruling, some of the plaintiffs could possibly pursue
individual claims or, could decide to appeal the District Court’s decision to the United States Court of Appeals for the
Tenth Circuit, which could reverse the District Court’s June 30 ruling. The Company intends to continue to vigorously
defend itself in this matter. Management believes the resolution of this matter will not materially affect the Company’s
financial position, results of operations or liquidity.
In December 2005, a federal grand jury sitting in Topeka, Kansas issued subpoenas regarding the vapor
degreasing equipment at our Wichita, Kansas facility. The government’s investigation appeared to focus on whether
39
the degreasers were operating within permit parameters and whether chemical wastes from the degreasers were
disposed of properly. The subpoenas covered a time period both before and after our purchase of the Wichita,
Kansas facility. Subpoenas were issued to Boeing, Spirit and individuals who were employed by Boeing prior to the
Boeing Acquisition, but are now employed by Spirit. The Company responded to the subpoena and provided
additional information to the government as requested. On March 25, 2008, the U.S. Attorney’s Office informed the
Company that it was closing its criminal file on the investigation. A civil investigation into this matter is ongoing.
Management believes the resolution of this matter will not materially affect the Company’s financial position,
results of operations or liquidity.
On February 16, 2007, an action entitled Harkness et al. v. The Boeing Company et al. was filed in the
U.S. District Court for the District of Kansas. The defendants were served in early July 2007. The defendants
include Spirit Holdings, Spirit, the Spirit AeroSystems Holdings Inc. Retirement Plan for the International
Brotherhood of Electrical Workers (IBEW), Wichita Engineering Unit (SPEEA WEU) and Wichita Technical
and Professional Unit (SPEEA WTPU) Employees, and the Spirit AeroSystems Retirement Plan for International
Association of Machinists and Aerospace Workers (IAM) Employees, along with Boeing and Boeing retirement
and health plan entities. The named plaintiffs are twelve former Boeing employees, eight of whom were or are
employees of Spirit. The plaintiffs assert several claims under the Employee Retirement Income Security Act and
general contract law and brought the case as a class action on behalf of similarly situated individuals. The putative
class consists of approximately 2,500 current or former employees of Spirit. The parties agreed to class certification
and are currently in the discovery process. The sub- class members who have asserted claims against the Spirit
entities are those individuals who, as of June 2005, were employed by Boeing in Wichita, Kansas, were participants
in the Boeing pension plan, had at least 10 years of vesting service in the Boeing plan, were in jobs represented by a
union, were between the ages of 49 and 55, and who went to work for Spirit on or about June 17, 2005. Although
there are many claims in the suit, the plaintiffs’ claims against the Spirit entities, asserted under various theories, are
(1) that the Spirit plans wrongfully failed to determine that certain plaintiffs are entitled to early retirement
“bridging rights” to pension and retiree medical benefits that were allegedly triggered by their separation from
employment by Boeing and (2) that the plaintiffs’ pension benefits were unlawfully transferred from Boeing to
Spirit in that their claimed early retirement “bridging rights” are not being afforded these individuals as a result of
their separation from Boeing, thereby decreasing their benefits. The plaintiffs seek a declaration that they are
entitled to the early retirement pension benefits and retiree medical benefits, an injunction ordering that the
defendants provide the benefits, damages pursuant to breach of contract claims and attorney fees. Boeing has
notified Spirit that it believes it is entitled to indemnification from Spirit for any “indemnifiable damages” it may
incur in the Harkness litigation, under the terms of the Asset Purchase Agreement from the Boeing Acquisition.
Spirit disputes Boeing’s position on indemnity. Management believes the resolution of this matter will not
materially affect the Company’s financial position, results of operations or liquidity.
On July 21, 2005, the UAW filed a grievance against Boeing on behalf of certain former Boeing employees in
Tulsa and McAlester, Oklahoma, regarding issues that parallel those asserted in Harkness et al. v. The Boeing
Company et al. Boeing denied the grievance, and the UAW subsequently filed suit to compel arbitration, which the
parties eventually agreed to pursue. The arbitration was conducted in January 2008. In July 2008, the arbitrator
issued an opinion and award in favor of the UAW. The arbitrator directed Boeing to reinstate the seniority of the
employees and “afford them the benefits appurtenant thereto.” On March 5, 2009, the arbitrator entered an Opinion
and Supplemental Award that directed Boeing to award certain benefits to UAW members upon whose behalf the
grievance was brought, notwithstanding the prior denial of such benefits by the Boeing Plan Administrator. On
April 10, 2009, Boeing filed a complaint in the United States District Court for the Northern District of Illinois,
seeking a ruling that the arbitrator exceeded his authority in granting the Supplemental Award. On September 16,
2009, the District Court entered an order affirming the arbitrator’s Supplemental Award. Boeing appealed the
District Court’s decision to the U.S. Seventh Circuit Court of Appeals, which recently affirmed the District Court’s
decision. Boeing previously notified Spirit of its intent to seek indemnification from Spirit for any “indemnifiable
damages” it may incur in the UAW matter, pursuant to the terms of the Asset Purchase Agreement. Spirit disputes
Boeing’s position on indemnity. Management believes the resolution of this matter will not materially affect the
Company’s financial position, results of operations or liquidity.
40
On May 11, 2009, Spirit filed a lawsuit in the United States District Court for the District of Kansas against
SPS Technologies LLC (“SPS”), and Precision Castparts Corp. Spirit’s claims are based on the sale by SPS of
certain non-conforming nut plate fasteners to Spirit between August 2007 and August 2008. Many of the fasteners
were used on assemblies that Spirit sold to a customer. In the fall of 2008, Spirit discovered the non-conformity and
notified the customer of the discrepancy. Subsequently, Spirit and the customer removed and replaced nut plates on
various in-process aircraft assemblies. Spirit’s lawsuit seeks damages, including damages related to these efforts,
under various theories, including breach of contract and breach of implied warranty.
Item 4. Removed and Reserved
Executive Officers of the Registrant
Listed below are the names, ages, positions held, and biographies of all executive officers of Spirit
AeroSystems. Executive officers hold office until their successors are elected or appointed at the next annual
meeting of the Board of Directors, or until their death, retirement, resignation, or removal.
Jeffrey L. Turner, 59. Mr. Turner has been the President and Chief Executive Officer of Spirit Holdings since
June 2006 and became a director of Spirit Holdings on November 15, 2006. Since June 16, 2005, the date of the
Boeing Acquisition, he has also served in such capacities for Spirit. Mr. Turner joined Boeing in 1973 and was
appointed Vice President — General Manager in November 1995. Mr. Turner received his Bachelor of Science in
Mathematics and Computer Science and his M.S. in Engineering Management Science, both from Wichita State
University. He was selected as a Boeing Sloan Fellow to the Massachusetts Institute of Technology’s (MIT) Sloan
School of Management where he earned a Master’s Degree in Management.
Philip Anderson, 46. Mr. Anderson became the Senior Vice President and Chief Financial Officer of Spirit
Holdings on February 12, 2010. From October 2009 until February 2010, Mr. Anderson served as Vice President
and Interim Chief Financial Officer of Spirit Holdings. Mr. Anderson also served as Treasurer of Spirit Holdings
from November 2006 to July 2010. From March 2003 until November 2006, Mr. Anderson was the Director of
Corporate Finance and Banking for Boeing. Mr. Anderson began his career at Boeing in 1989 as a defense program
analyst and served in a variety of finance and manufacturing operations leadership positions at Boeing Defense
Systems and Boeing Commercial Airplanes. Mr. Anderson received his Bachelor of Arts and Masters of Business
from Wichita State University and holds a Six Sigma Black Belt certification from the University of Michigan.
H. David Walker, 59. Mr. Walker became the Senior Vice President, Chief Technology Officer and Business
Development of Spirit Holdings in July 2009 and served as Senior Vice President of Sales and Marketing for Spirit
Holdings and/or Spirit from September 2005 to July 2009. From 2003 through September 2005, Mr. Walker was a
Vice President of Vought Aircraft Industries. Mr. Walker served as the Vice President/General Manager/Member of
the Board of Directors of The Aerostructures Corp. from 2002 until 2003 and served as Vice President of Programs
and Marketing from 1997 through 2002. Mr. Walker received both his Bachelor of Science and Masters of Science
in Mechanical Engineering from Vanderbilt University.
Gloria Farha Flentje, 67. Ms. Flentje became Senior Vice President of Corporate Administration and Human
Resources of Spirit Holdings in April 2008 and served as Vice President, General Counsel and Secretary of Spirit
Holdings and/or Spirit from the date of the Boeing Acquisition until April 2008. Prior to the Boeing Acquisition, she
worked for Boeing as Chief Legal Counsel for five years. Prior to joining Boeing, she was a partner in the Wichita, Kansas
law firm of Foulston & Siefkin, L.L.P., where she represented numerous clients, including Boeing, on employment and
labor matters and school law issues. Ms. Flentje graduated from the University of Kansas with a Bachelor of Arts in
Mathematics and International Relations. She received her law degree from Southern Illinois University.
Samantha J. Marnick, 40. Ms. Marnick became Senior Vice President of Corporate Administration and Human
Resources on January 1, 2011. From March 2008 until December 2010, Ms. Marnick served as Vice President Labor
Relations & Workforce Strategy responsible for labor relations, global human resource project management office,
compensation and benefits, and workforce planning. Ms. Marnick previously served as Director of Communications and
Employee Engagement from March 2006 to March 2008. Prior to joining the company, Ms. Marnick was a senior
consultant and Principal for Mercer Human Resource Consulting holding management positions in both the United
Kingdom and in the United States. Prior to that Ms. Marnick worked for Watson Wyatt, the UK’s Department of Health
and Social Security and The British Wool Marketing Board. Ms. Marnick holds a Master’s Degree from the University of
Salford in Corporate Communication Strategy and Management.
41
John Lewelling, 50. Mr. Lewelling became the Senior Vice President/General Manager, Wing Systems
Segment for Spirit Holdings in April 2008 and served as the Senior Vice President, Strategy and Information
Technology for Spirit Holdings from November 2006 through April 2008. Mr. Lewelling was the Chief Operating
Officer of GVW Holdings from 2004 to 2006. Mr. Lewelling was a Managing Director with AlixPartners from 2002
to 2003. Prior to that, he was a Partner with AT Kearney and Booz Allen from 1996 to 2002. Mr. Lewelling received
his Bachelor of Science degree in Materials and Logistics Management from Michigan State University.
Richard Buchanan, 60. Mr. Buchanan became the Senior Vice President & Chief Operations Officer of
Spirit Holdings in July 2009 and served as General Manager of Fuselage Systems Segment of Spirit Holdings and/or
Spirit from the date of the Boeing Acquisition to July 2009. Prior to the Boeing Acquisition, he was employed by
Boeing for more than 25 years, all of which were spent at Boeing Wichita, except for one and one-half years in
Everett, Washington as Fuselage Leader for the 787. During his tenure with Boeing, Mr. Buchanan held the
positions of Director for Sub-Assembly/Lot Time, Director for Light Structures, and the Director and Leader of
B737 Structures Value Chain. Mr. Buchanan is a graduate of Friends University with a Bachelor of Science degree
in Human Resource Management.
Michael G. King, 55. Mr. King became the Senior Vice President/General Manager, Fuselage Systems
Segment of Spirit Holdings in July 2009 and served as the Senior Vice President/General Manager of Propulsion
Systems Segment of Spirit Holdings and/or Spirit from the date of the Boeing Acquisition to July 2009. Prior to the
Boeing Acquisition, Mr. King worked for Boeing for 25 years, from 1980 until 2005. In 1990, Mr. King was
assigned to the Sub-Assembly/Lot Time Manufacturing Business Unit at Boeing, responsible for lot time
production activities. From 1996 until 2002, he worked at Boeing’s Machining Fabrication Manufacturing Business
Unit with responsibility for production of complex machined detail parts and assemblies for all commercial airplane
models. In 2002, Mr. King became the Director of the Strut, Nacelle and Composite Responsibility Center at
Boeing. Mr. King earned an Associate of Arts degree from Butler County Community College. He completed his
Bachelor of Science in Manufacturing Technology at Southwestern College and received a Mini-MBA from
Wichita State University. Mr. King also completed the Duke University Executive Management Program in 2002.
John Pilla, 51. Mr. Pilla became the Senior Vice President/General Manager, Propulsion Systems Segment
of Spirit Holdings in July 2009. From April 2008 to July 2009, Mr. Pilla was Chief Technology Officer of Spirit
Holdings and he served as Vice President/General Manager-787 of Spirit Holdings and/or Spirit, a position he
assumed at the date of the Boeing Acquisition in June 2005 and held until March 2008. Mr. Pilla began his career at
Boeing Commercial Airplanes in 1981 as a stress engineer and was promoted to Chief Engineer of Structures and
Liaison in 1995. In 1997, Mr. Pilla led the Next-Generation 737 engineering programs and ultimately led the Define
Team on the 737-900 fuselage and empennage in late 1997 as well as the 777LR airplane in May 2000. In July 2001,
Mr. Pilla became the Director of Business Operations, a position he held until July 2003 when he accepted an
assignment as 787 Director of Product Definition and Manufacturing. He received his Master’s degree in Aerospace
Structures Engineering in 1986 and an MBA in 2002 from Wichita State University.
Michelle A. Russell, 41. Ms. Russell was named Senior Vice President, General Counsel and Secretary of
Spirit Holdings in June 2010. She joined the Company as Associate General Counsel in January 2009, providing
legal consultation, research and risk management assessment to assist a wide range of business operation and
strategy initiatives. From 2005 to January 2009 Ms. Russell served as Vice President, Legal and Assistant General
Counsel for YRC Worldwide, where she directed legal support for the enterprise’s shared services, operations and
finance organizations as well as domestic and international acquisitions. Ms. Russell earned her Juris Doctorate
from the University of Kansas. She also holds degrees in Atmospheric Science and Anthropology from the
University of Kansas. Ms. Russell is a member of the Kansas Bar Association, the Missouri Bar Association, and the
American Corporate Counsel Association. She is also a full member of the American Meteorological Society.
Neil McManus, 45. Mr. McManus is the Vice President and Managing Director of Spirit AeroSystems
(Europe) Limited and has executive responsibility for Spirit AeroSystems (Malaysia) Sdn. Bhd. Since the date of
the BAE Acquisition, he has served in that capacity for Spirit Europe. Mr. McManus joined BAE Systems
Aerostructures in 1986 and was appointed Managing Director — Aerostructures in January 2003. Mr. McManus
was educated at Loughborough University of Science and Technology, where he received his Bachelor of Science
Honors Degree in Engineering Manufacturing and a diploma in Industrial Studies.
42
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our class A common stock has been quoted on the NYSE under the symbol “SPR” since November 21, 2006.
Prior to that time, there was no public market for our stock. As of February 16, 2011, there were approximately 353
holders of record of class A common stock. However, we believe that many additional holders of our class A
common stock are unidentified because a substantial number of shares are held of record by brokers or dealers for
their customers in street names. The closing price on February 16, 2011 was $25.28 per share as reported by the
NYSE.
As of February 17, 2011, there were approximately 185 holders of record of class B common stock. Our class B
common stock is neither listed nor publicly traded.
The following table sets forth for the indicated periods the high and low closing sales price for our class A
common stock on the NYSE.
2010
Fiscal Quarter
1st . . . . . . . . . .
2nd . . . . . . . . . .
3rd . . . . . . . . . .
4th . . . . . . . . . .
.................................
.................................
.................................
.................................
2009
High
Low
High
Low
$23.69
$23.88
$21.53
$21.75
$16.50
$17.26
$18.57
$18.08
$14.53
$16.94
$18.69
$20.50
$ 8.03
$10.68
$12.08
$15.79
Dividend Policy
We did not pay any cash dividends in 2009 or 2010 and we currently do not intend to pay cash dividends and,
under conditions in which our cash is below specific levels, are prohibited from doing so under credit agreements
governing our credit facilities. Our future dividend policy will depend on the requirements of financing agreements
to which we may be a party. Any future determination to pay dividends will be at the discretion of our Board of
Directors and will depend upon, among other factors, our results of operations, financial condition, capital
requirements and contractual restrictions.
43
Securities Authorized for Issuance under Equity Compensation Plans
The following table represents restricted shares outstanding under the Executive Incentive Plan, the Director
Stock Plan, and the Short-Term and Long-Term Incentive Plans as of December 31, 2010.
Equity Compensation Plan Information
Plan Category
Restricted Stock Awards
Equity compensation plans approved by
security holders(1)(2) . . . . . . . . . . . . . . . .
Equity compensation plans not approved by
security holders(2) . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of Securities
to be Issued
Upon Exercise of
Outstanding Options,
Warrants and Rights
(a)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
Number of Securities
Remaining Available
for Future Issuances
Under the Equity
Compensation Plans
(Excluding Securities
Reflected in Column(a))
(c)
N/A(3)
$—
11,496,069(4)
—
N/A(3)
$—
$—
—
11,496,069(4)
(1) Approved by previous security holders in place before our initial public offering. Amendments were approved
by shareholders in 2008.
(2) Our equity compensation plans provide for the issuance of incentive awards to officers, directors, employees
and consultants in the form of stock appreciation rights, restricted stock, restricted stock units and deferred
stock, in lieu of cash compensation.
(3) There are 1,523,338 class A shares and 2,101,823 class B shares outstanding under the Executive Incentive
Plan, the Director Stock Plan, and the Short-Term and Long-Term Incentive Plans as of December 31, 2010.
(4) As of December 31, 2010, there are 6,340,138, 2,499,731, 1,769,531 and 886,669 securities available for future
issuance under the Executive Incentive Plan, the Director Stock Plan, and the Short-Term and Long-Term
Incentive Plans, respectively.
44
Item 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The following table sets forth our selected consolidated financial data for each of the periods indicated.
Financial data for the twelve month periods ended December 31, 2006, December 31, 2007, December 31, 2008,
December 31, 2009, and December 31, 2010 are derived from the audited consolidated financial statements of Spirit
Holdings. The audited consolidated financial statements for the years ended December 31, 2008, December 31,
2009 and December 31, 2010 are included in this Annual Report. You should read the information presented below
in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and our combined and consolidated financial statements and related notes contained elsewhere in this Annual
Report.
Statement of Income Data:
Net revenues . . . . . . . . . . . . . . . . . .
Cost of sales(1) . . . . . . . . . . . . . . . .
Selling, general and administrative
expenses(2). . . . . . . . . . . . . . . . . .
Research and development . . . . . . . .
December 31,
2010
December 31,
2009
$4,172.4
3,607.9
$4,078.5
3,581.4
156.0
51.5
Operating Income . . . . . . . . . . . . . . .
Interest expense and financing fee
amortization(3) . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . .
Other income (loss), net . . . . . . . . . .
Income (loss) before income taxes
and equity in net loss of affiliate . .
Income tax benefit (provision)(4) . . .
Equity in net loss of affiliates . . . . . .
Spirit Holdings
December 31,
2008
December 31,
2007
December 31,
2006
$3,771.8
3,163.2
$3,860.8
3,197.2
$3,207.7
2,934.3
137.1
56.7
154.5
48.4
192.1
52.3
225.0
104.7
357.0
303.3
405.7
419.2
(56.3)
(59.1)
0.3
(0.4)
(43.6)
7.0
6.1
(39.2)
18.6
(1.2)
(36.8)
29.0
8.4
(50.1)
29.0
5.9
297.8
(78.2)
(0.7)
272.8
(80.9)
(0.2)
383.9
(118.5)
—
419.8
(122.9)
—
(71.5)
88.3
—
Net income . . . . . . . . . . . . . . . . . . .
$ 218.9
$ 191.7
$ 265.4
$ 296.9
$
16.8
Net Income per share, basic . . . . . . .
Shares used in per share calculation,
basic(5) . . . . . . . . . . . . . . . . . . . .
Net income per share, diluted . . . . . .
Shares used in per share calculation,
diluted . . . . . . . . . . . . . . . . . . . . .
Other Financial Data:
Cash flow provided by (used in)
operating activities . . . . . . . . . . . .
Cash flow (used in) investing
activities . . . . . . . . . . . . . . . . . . . .
Cash flow provided by financing
activities . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . .
$
$
$
$
$
0.15
1.56
1.39
1.93
2.19
137.9
$ 1.55
137.2
$ 1.37
137.0
$ 1.91
134.5
$ 2.13
115.6
$ 0.14
141.0
139.8
139.2
139.3
122.0
$ 125.1
$ (13.9)
$ 210.7
$ 180.1
$ 273.6
$ (288.4)
$ (112.4)
$ (119.8)
$ (239.1)
$ (473.6)
$ 277.4
$ (288.1)
$ 276.1
$ (228.2)
$
3.5
$ (235.8)
$
8.3
$ (288.2)
$ 140.9
$ (343.2)
45
Consolidated Balance Sheet Data:
Cash and cash equivalents. . . . . . . . .
Accounts receivable, net . . . . . . . . . .
Inventories, net . . . . . . . . . . . . . . . . .
Property, plant & equipment, net . . . .
Total assets . . . . . . . . . . . . . . . . . . .
Total debt. . . . . . . . . . . . . . . . . . . . .
Long-term debt. . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . .
December 31,
2010
December 31,
2009
$ 481.6
$ 200.2
$2,507.9
$1,470.0
$5,102.0
$1,196.8
$1,187.3
$1,810.9
$ 369.0
$ 160.4
$2,206.9
$1,279.3
$4,473.8
$ 893.8
$ 884.7
$1,573.8
Spirit Holdings
December 31,
2008
$ 216.5
$ 149.3
$1,882.0
$1,068.3
$3,760.3
$ 588.0
$ 580.9
$1,297.5
December 31,
2007
December 31,
2006
$ 133.4
$ 159.9
$1,342.6
$ 963.8
$3,339.9
$ 595.0
$ 579.0
$1,267.1
$ 184.3
$ 200.2
$ 882.2
$ 773.8
$2,722.2
$ 618.2
$ 594.3
$ 859.5
(1) Included in 2010 cost of sales are charges of $28.7 million related to the grant of shares to employees
represented by the IAM in connection with the ratification of a new ten-year labor contract on June 25, 2010,
early retirement incentives for members represented by IAM who made elections to retire in 2010, and grants of
shares to employees represented by the UAW in connection with the ratification of a new ten-year labor contract
on December 18, 2010. Included in 2007 and 2006 cost of sales are non-recurring charges of $1.2 million and
$321.9 million, respectively for the Union Equity Participation Plan.
(2) Includes non-cash stock compensation expenses of $7.9 million, $9.7 million, $15.3 million, $32.6 million,
$56.6 million, for the respective periods starting with the twelve months ended December 31, 2010. Also
included in 2007 are $4.9 million of costs associated with the evaluation of Airbus’ European manufacturing
sites in 2007. Included in 2006 are $8.3 million of IPO-related charges.
(3) Included in 2006 interest expense and financing fee amortization are expenses related to the IPO of
$3.7 million.
(4) Included in the 2006 income tax benefit is a $40.1 million federal and a $4.0 million state tax valuation
allowance reversal totaling $44.1 million.
(5) Under the FASB guidance, unvested share-based payment awards that contain non-forfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included
in the computation of earnings per share pursuant to the two-class method.
46
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction
with the audited consolidated financial statements, the notes to the audited consolidated financial statements and the
“Selected Consolidated Financial Information and Other Data” appearing elsewhere in this Annual Report. This
discussion contains forward-looking statements that must be understood in the context of numerous risks and
uncertainties, including, but not limited to, those described in the “Risk Factors” section of this Annual Report. See
“Cautionary Statements Regarding Forward-Looking Statements.” Our results may differ materially from those
anticipated in any forward-looking statements.
Recent Events
On January 12, 2011, we announced that we reached an agreement with The Boeing Company regarding
certain claims associated with the development and production of the 787-8 airplane in December 2010. The
agreement provides that the parties will complete formal amendments in the first half of 2011. The impact of the
agreement was included in our fourth quarter and full year 2010 results. For further discussion see Item 1,
Business — Our Relationship with Boeing, in this Annual Report.
On November 11, 2010, Boeing announced the postponement of further flight test activities on the B787,
following the occurrence of an onboard electrical fire. On December 23, 2010, Boeing announced that it was
resuming test flight activities on the B787 that day. On January 18, 2011, Boeing announced that it expects delivery
of the first B787 to take place in the third quarter of 2011.
Overview
We are one of the largest independent non-OEM (original equipment manufacturer) aircraft parts designers
and manufacturers of commercial aerostructures in the world, based on annual revenues, as well as the largest
independent supplier of aerostructures to Boeing. In addition, we are one of the largest independent suppliers of
aerostructures to Airbus. Boeing and Airbus are the two largest aircraft OEMs in the world. Aerostructures are
structural components, such as fuselages, propulsion systems and wing systems for commercial and military
aircraft. For the twelve months ended December 31, 2010, we generated net revenues of $4,172.4 million and net
income of $218.9 million.
We are organized into three principal reporting segments: (1) Fuselage Systems, which includes forward, mid
and rear fuselage sections, (2) Propulsion Systems, which includes nacelles, struts/pylons and engine structural
components, and (3) Wing Systems, which includes wings, wing components, flight control surfaces and other
miscellaneous structural parts. All other activities fall within the All Other segment, principally made up of sundry
sales of miscellaneous services, tooling contracts, and sales of natural gas through a tenancy-in-common with other
companies that have operations in Wichita. The Fuselage Systems segment manufactures products at our facilities
in Wichita, Kansas and Kinston, North Carolina. The Propulsion Systems segment manufactures products at our
facilities in Wichita, Kansas. The Wing Systems segment manufactures products at our facilities in Tulsa and
McAlester, Oklahoma, Prestwick, Scotland, Subang, Malaysia and Kinston, North Carolina. Fuselage Systems,
Propulsion Systems, Wing Systems and All Other represented approximately 49%, 25%, 26% and less than 1%
respectively, of our net revenues for the twelve months ended December 31, 2010.
Market Trends
The financial health of the commercial airline industry has a direct and significant effect on our commercial
aircraft programs. The global industry’s revenue rebounded sharply in 2010 for both passenger air traffic and cargo
freight, after significant contraction in 2008 and 2009. One key near-term variable affecting the industry is fuel
costs, which are expected to rise in 2011, possibly deteriorating the industry’s profit margins. If fuel costs were to
rise near the recent highs of 2008, airlines might respond with canceled or deferred orders. However, Boeing and
Airbus have indicated that they do not anticipate any near-term erosion to their backlogs. Both OEM’s have
announced multiple production rate increases, commencing in 2011 with the respective single-aisle programs
(Airbus A320 and Boeing B737).
47
Demand for commercial aerostructures is highly correlated to demand for new aircraft. From 2005 through
2008, Boeing and Airbus experienced an unprecedented order intake and backlog growth. In that period, the two
manufacturers obtained combined total gross orders of approximately 8,400 aircraft. Their aggregate backlog
increased from nearly 2,600 to over 7,400 aircraft. An order slowdown in 2009 resulted in a decrease in aggregate
backlog. However, net orders for 2010 rebounded from the previous year. Commercial net orders were 1,104 in
2010, resulting in a backlog increase of 132 aircraft. High backlog levels are expected to continue to drive
increasing production and delivery forecasts in the near to mid-term from both Boeing and Airbus. The following
table sets forth the historical deliveries of Boeing and Airbus for 2006 through 2010 and delivery expectations for
2011.
2006
2007
2008
2009
2010
2011(1)
Boeing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Airbus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
398
434
441
453
375
483
481
498
462
510
485-500
520-530
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
832
894
858
979
972
1,005-1,030
(1) Boeing has announced that it expects its 2011 deliveries to be between 485-500. We expect Airbus deliveries to
be approximately 520-530 in 2011.
Inventory continues to grow in terms of absolute dollars and remains stable as a percentage of total assets.
Inventory as a percentage of total assets was 49%, 49% and 50% at December 31, 2010, 2009, and 2008,
respectively. This overall trend in inventory is driven primarily by our contractually required investments in new
programs which include the Boeing B787, Gulfstream G250 and G650, Airbus A350 XWB, Sikorsky CH-53K and
Rolls Royce BR725 programs. The contracts for these new programs accounted for an increase in inventory from
2009 to 2010 of $385.9 million, which is net of a $93.0 million forward loss provision recorded in 2009 as a
reduction to inventory on our G250 contract. This increase was partially offset by a $48.6 million decrease in
inventory from mature Boeing and Airbus programs. The increases in inventory for new programs in the last few
years are a result of the application of the percentage-of-completion method of contract accounting with regard to
inventory and revenue recognition. Under this method, investments in new contracts, including contractual preproduction costs and recurring production costs in excess of the projected average cost to manufacture all units in
the contract block, initially accumulate in inventory for the related contract. Once production has reached a point
where the cost to produce a ship set falls below such projected average cost, the inventory balance for such program
will begin to decrease. As many of our new programs are either in the pre-production phase or the early stages of
recurring production, we expect that inventory balances will continue to increase in 2011. Deferred inventory costs
are evaluated for recoverability through their inclusion in the total costs used in the calculation of each contract’s
estimated profit margin. When the estimated total contract costs exceed total estimated contract revenues, an
inventory reserve is established.
New Program Performance
We are currently performing work on several new programs, which are in various stages of development.
Several of these programs entered flight testing during the fourth quarter of 2009, including the Boeing B787,
Gulfstream G250, and Gulfstream G650 (which includes the Rolls Royce BR725) and we delivered revenuegenerating production units for all of these programs in 2010. In addition, we are working on the new Boeing B747
derivative (the B747-8), which entered flight testing in February of 2010.
Certain of these programs continue to pose a risk of additional charges and/or forward losses given the low
margins that are currently forecasted and cost pressure that has continued through the fourth quarter of 2010. In
2010, we recorded a $7.1 million unfavorable cumulative catch-up adjustment related to periods prior to 2010 on
our Sikorsky CH-53K contract as a result of additional costs required to meet test hardware schedules. We continue
to see risk for cost growth on this program, which has deteriorated current margins on our contract to break-even.
Our estimated margins on the initial Rolls-Royce BR725 contract continue to be zero. The G250 program is
experiencing cost growth as we progress through the certification process. We are currently in the process of
restructuring the major cost elements of the G250 program in order to drive cost savings. A forward loss on this
program continues to be a significant risk and is dependent upon our ability to successfully perform under the
48
revised reduced cost structure as we enter into production. We are also estimating zero margins on a contract related
to the wing portion of the B747-8 program. The B787 contract profitability will depend on our ability to achieve cost
reduction opportunities as we increase production levels in the coming months and years. During the fourth quarter
of 2010, based on a comprehensive analysis of our 787 contract, we revised our contract estimates to reflect a breakeven margin, which resulted in a cumulative catch-up adjustment in the fourth quarter which was a $9.0 million
charge. A forward loss on this program continues to be a significant risk until planned cost reductions are realized
through performance initiatives.
The next six to twelve months will be a critical time for these programs as we manufacture the initial units and
establish baseline performance for the recurring cost structure. If we are not able to achieve anticipated productivity
and cost improvements, or if external factors such as market demand trend unfavorably, additional charges,
including forward loss reserves, may be recorded in future periods.
Basis of Presentation
The financial statements include Spirit’s financial statements and the financial statements of its majorityowned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the
United States of America. Investments in business entities in which we do not have control, but have the ability to
exercise influence over operating and financial policies, are accounted for by the equity method. Kansas Industrial
Energy Supply Company (“KIESC”), a tenancy-in-common with other Wichita companies established to purchase
natural gas, is fully consolidated as Spirit owns 77.8% of the entity’s equity. All intercompany balances and
transactions have been eliminated in consolidation. Spirit’s U.K. subsidiary uses local currency, the British pound,
as its functional currency. All other foreign subsidiaries use local currency as their functional currency with the
exception of our Malaysian subsidiary, which uses the British pound, and our French subsidiary, which uses the
U.S. dollar.
As part of the monthly consolidation process, the functional currency is translated to U.S. dollars using the
end-of-month currency translation rate for balance sheet accounts and average period currency translation rates for
revenue and income accounts as defined by FASB authoritative guidance on foreign currency translation.
Critical Accounting Policies
The following discussion and analysis of our financial condition and results of operations is based upon our
consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of
these financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis,
we evaluate our estimates, including those related to inventory, income taxes, financing obligations, warranties,
pensions and other post-retirement benefits and contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Management believes that the quality and reasonableness of our most critical policies
enable the fair presentation of our financial position and results of operations. However, the sensitivity of financial
statements to these methods, assumptions and estimates could create materially different results under different
conditions or using different assumptions.
The following are our most critical accounting policies, which are those that require management’s most
subjective and complex judgments, requiring the use of estimates about the effect of matters that are inherently
uncertain and may change in subsequent periods.
Revenues and Profit Recognition
A significant portion of the Company’s revenues are recognized under long-term, volume-based pricing
contracts, requiring delivery of products over several years. The Company recognizes revenue under the contract
method of accounting and records sales and profits on each contract in accordance with the percentage-of-completion
method of accounting, primarily using the units of delivery method. Revenues from non-recurring design work are
recognized based on substantive milestones or use of the cost-to-cost method, that are indicative of our progress
49
toward completion depending on facts and circumstances. We follow the requirements of FASB authoritative guidance
on accounting for the performance of construction-type and certain production-type contracts (the contract method of
accounting), using the cumulative catch-up method in accounting for revisions in estimates. Under the cumulative
catch-up method, the impact of revisions in estimates are recognized immediately when changes in estimated contract
profitability become known.
A profit rate is estimated based on the difference between total revenues and total costs of a contract. Total
revenues at any given time include actual historical revenues up to that time plus future estimated revenues. Total
costs at any given time include actual historical costs up to that time plus future estimated costs. Estimated revenues
include negotiated or expected values for units delivered, estimates of probable recoveries asserted against the
customer for changes in specifications, price adjustments for contract and volume changes, and escalation. Costs
include the estimated cost of certain pre-production effort (including non-recurring engineering and planning
subsequent to completion of final design) plus the estimated cost of manufacturing a specified number of production
units. Estimates take into account assumptions relative to future labor performance and rates, and projections
relative to material and overhead costs including expected “learning curve” cost reductions over the term of the
contract. The specified number of production units used to establish the profit margin (“contract block”) is
predicated upon contractual terms and market forecasts. The assumed timeframe/period covered by the contract
block is generally equal to the period specified in the contract or the future timeframe for which we can project
reasonably dependable cost estimates. Estimated revenues and costs also take into account the expected impact of
specific contingencies that we believe are probable.
Estimates of revenues and costs for our contracts span a period of multiple years and are based on a substantial
number of underlying assumptions. We believe that the underlying assumptions are sufficiently reliable to provide a
reasonable estimate of the profit to be generated. However, due to the significant length of time over which revenue
streams will be generated, the variability of the revenue and cost streams can be significant if the assumptions
change.
For revenues not recognized under the contract method of accounting, the Company recognizes revenues from
the sale of products at the point of passage of title, which is generally at the time of shipment. Shipping and handling
costs are included in cost of sales. Revenues earned from providing maintenance services including any contracted
research and development are recognized when the service is complete or other contractual milestones are attained.
Since Boeing retained title to tooling assets and provides such tooling to the Company at no cost, the Company
treats the amortization of Boeing-owned tooling as a reduction to revenues as required by FASB authoritative
guidance on consideration given by a vendor to a customer, including resellers of the vendor’s product. These items
are netted against gross revenues in calculating net revenues. The Company expects to recognize no reductions to
net revenues in 2011 for Boeing tooling, as the tooling became fully amortized in 2010. However, under an
agreement with Airbus, certain payments that are also accounted for as consideration given by a vendor to a
customer will be amortized as a reduction to net revenues beginning in 2011.
New Programs
A significant portion of the Company’s future revenues is expected to be derived from new programs, most
notably the B787, on which we may be contracted to provide design and engineering services, recurring production,
or both. There are several risks inherent to such new programs. In the design and engineering phase, we may incur
costs in excess of our forecasts due to several factors, including cost overruns, customer directed change orders and
delays in the overall program. We may also incur higher than expected recurring production costs, which may be
caused by a variety of factors, including the future impact of engineering changes (or other change orders) or our
inability to secure contracts with our suppliers at projected cost levels. Our ability to recover these excess costs from
the customer will depend on several factors, including our rights under our contracts for the new programs. In
determining our profits and losses in accordance with the percentage-of-completion method of contract accounting,
we are required to make significant assumptions regarding our future costs, as well as the estimated number of units
to be manufactured under the contract and other variables. We continually review and update our assumptions based
on market trends and our most recent experience. If we make material changes to our assumptions, such as a
reduction in the estimated number of units to be produced under the contract (which could be caused by emerging
50
market trends or other factors), an increase in future production costs or a change in the recoverability of increased
design or production costs, we may experience negative cumulative catch-up adjustments related to revenues
previously recognized. In some cases, we may recognize forward loss amounts. For a broader description of the
various types of risks we face related to new programs, see “Risk Factors — Risk Factors Related to Our Business
and Industry.”
Inventory
Raw materials are stated at lower of cost (principally on an actual or average cost basis) or market. Inventoried
costs attributed to units delivered under long-term contracts are based on the estimated average cost of all units
expected to be produced and are determined under the learning curve concept which anticipates a predictable
decrease in unit costs as tasks and production techniques become more efficient through repetition. This usually
results in an increase in inventory (referred to as “excess-over-average” or “deferred production costs”) during the
early years of a contract. These costs are deferred only to the extent the amount of actual or expected
excess-over-average is reasonably expected to be fully offset by lower-than-average costs in future periods of a
contract. If in-process inventory plus estimated costs to complete a specific contract exceed the anticipated
remaining revenues of such contract, such excess is charged to cost of sales in the period the loss becomes known,
thus reducing inventory to estimated realizable value. Costs in inventory include amounts relating to contracts with
long production cycles, some of which are not expected to be realized within one year.
The Company reviews its general stock materials and spare parts inventory each quarter to identify impaired
inventory, including excess or obsolete inventory, based on historical sales trends and expected production usage.
Impaired inventories are written off in the period identified.
Finished goods inventory is stated at its estimated average per unit cost based on all units expected to be
produced.
Income Taxes
Income taxes are accounted for in accordance with FASB authoritative guidance on accounting for income
taxes. Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable
to differences between the financial statement carrying amounts for existing assets and liabilities and their
respective tax bases. A valuation allowance is recorded to reduce deferred income tax assets to an amount that in
management’s opinion will ultimately be realized. Tax rate changes impacting these assets and liabilities are
recognized in the period during which the rate change occurs.
We record an income tax expense or benefit based on the net income earned or net loss incurred in each tax
jurisdiction and the tax rate applicable to that income or loss. In the ordinary course of business, there are
transactions for which the ultimate tax outcome is uncertain. These uncertainties are accounted for in accordance
with FASB authoritative guidance on accounting for the uncertainty in income taxes. The final tax outcome for
these matters may be different than management’s original estimates made in determining the income tax provision.
A change to these estimates could impact the effective tax rate and net income or loss in subsequent periods. We use
the flow-through accounting method for tax credits. Under this method, tax credits reduce income tax expense.
Pensions and Other Post-Retirement Benefits
We account for pensions and other post-retirement benefits in accordance with FASB authoritative guidance on
employers’ accounting for pensions, post-retirement benefits other than pensions, defined benefit pension and other
post-retirement plans.
Assumptions used in determining the benefit obligations and the annual expense for our pension and postretirement benefits other than pensions are evaluated and established in conjunction with an independent actuary.
We set the discount rate assumption annually for each of our retirement-related benefit plans as of the
measurement date, based on a review of projected cash flows and long-term high-quality corporate bond yield
curves. The discount rate determined on each measurement date is used to calculate the benefit obligation as of that
date, and is also used to calculate the net periodic benefit expense/(income) for the upcoming plan year.
51
We derive assumed expected rate of return on pension assets from the long-term expected returns based on the
investment allocation by class specified in our investment policy. The expected return on plan assets determined on
each measurement date is used to calculate the net periodic benefit expense/(income) for the upcoming plan year.
Assumed health care cost trend rates have a significant effect on the amounts reported for the post-retirement
health care plans. To determine the health care cost trend rates, we consider national health trends and adjust for our
specific plan designs and locations.
Stock Compensation Plans
At inception, we adopted FASB authoritative guidance which generally requires companies to measure the cost
of employee and non-employee services received in exchange for an award of equity instruments based on the
grant-date fair value and to recognize this cost over the requisite service period or immediately if there is no service
period or other performance requirements. Stock-based compensation represents a significant accounting policy of
ours, which is further described in Note 14 within the notes to our consolidated financial statements included in this
Annual Report.
We have established various stock compensation plans that include restricted share grants and restricted stock
units.
New Accounting Standards
For a listing of new accounting standards see Note 2, “Summary of Significant Accounting Policies — New
Accounting Standards.”
Results of Operations
The following table sets forth, for the periods indicated, certain of our operating data:
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses(2) . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Twelve
Months
Ended
December 31,
2010
Twelve
Months
Ended
December 31,
2009
($ in millions)
Twelve
Months
Ended
December 31,
2008
$4,172.4
3,607.9
156.0
51.5
$4,078.5
3,581.4
137.1
56.7
$3,771.8
3,163.2
154.5
48.4
Operating income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense and financing fee amortization . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
357.0
(59.1)
0.3
(0.4)
303.3
(43.6)
7.0
6.1
405.7
(39.2)
18.6
(1.2)
Income before income taxes and equity in net loss of affiliate . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
297.8
(78.2)
272.8
(80.9)
383.9
(118.5)
Income before equity in net loss of affiliate . . . . . . . . . . . . . . . . .
Equity in net loss of affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
219.6
(0.7)
191.9
(0.2)
265.4
—
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 218.9
$ 191.7
$ 265.4
(1) Included in 2010 cost of sales are charges of $28.7 million related to the grant of shares to employees
represented by the IAM in connection with the ratification of a new ten-year labor contract on June 25, 2010,
early retirement incentives for members represented by IAM who made elections to retire in 2010, and grants of
shares to employees represented by the UAW in connection with the ratification of a new ten-year labor contract
on December 18, 2010.
(2) Includes non-cash stock compensation expenses of $7.9 million, $9.7 million and $15.3 million for the
respective periods starting with the twelve months ended December 31, 2010.
52
For purposes of measuring production or ship set deliveries for Boeing aircraft in a given period, the term “ship
set” refers to sets of structural fuselage components produced or delivered for one aircraft in such period. For
purposes of measuring production or ship set deliveries for Airbus aircraft in a given period, the term “ship set”
refers to all structural aircraft components produced or delivered for one aircraft in such period. Other components
which are part of the same aircraft ship sets could be produced or shipped in earlier or later accounting periods than
the components used to measure production or ship set deliveries, which may result in slight variations in
production or delivery quantities of the various ship set components in any given period.
Comparative ship set deliveries by model are as follows:
Twelve Months
Ended
December 31,
2010
Model
Twelve Months
Ended
December 31,
2009
Twelve Months
Ended
December 31,
2008
B737 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B747 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B767 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B777 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B787 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
372
10
15
67
16
350
11
12
82
11
317
16
10
68
3
Total Boeing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A320 Family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A330/340 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A380. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
480
368
72
18
466
408
100
11
414
367
90
16
Total Airbus. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hawker 800 Series. . . . . . . . . . . . . . . . . . . . . . . . . .
458
19
519
44
473
91
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
957
1,029
978
Net revenues by prime customer are as follows:
Twelve Months
Ended
December 31,
2010
Prime Customer
Twelve Months
Twelve Months
Ended
Ended
December 31,
December 31,
2008
2009
(Dollars in millions)
Boeing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Airbus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sikorsky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,480.8
465.4
59.6
166.6
$3,472.4
444.1
45.2
116.8
$3,219.6
421.1
19.9
111.2
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . .
$4,172.4
$4,078.5
$3,771.8
2009 G250 Forward Loss Charge
In the second quarter of 2009, we recorded a $93.0 million forward loss charge for the Gulfstream G250
business jet program. Under our contract for this program, we have the exclusive right to design, develop and
manufacture wing components over the life of the program. The contract provides for fixed prices, which are subject
to annual formulaic adjustments based on changes in certain specified cost indices. In addition, the G250 contract
requires us to fund certain up-front development expenses. The G250 program charge resulted from the combination of higher than anticipated non-recurring costs, increased forecasted costs on recurring production and a
decrease in the estimated number of units to be produced over which the increased non-recurring costs will be
spread. The increases in costs were driven by several factors, including: changing technical requirements,
overspending on the design and engineering phase of the program and uncertainty in our ability to secure
long-term contracts with suppliers at projected cost levels. The decrease in the estimated number of units to be
produced under the contract was due to deterioration in the global economy and decreasing demand for mid-sized
53
business jets. Further cost increases or an inability to meet revised recurring cost forecasts on the G250 program
may result in additional forward loss reserves in future periods, while improvements in future costs compared to
current estimates may result in favorable adjustments if forward loss reserves are no longer required.
Twelve Months Ended December 31, 2010 as Compared to Twelve Months Ended December 31, 2009
Net Revenues. Net revenues for the twelve months ended December 31, 2010, were $4,172.4 million, an
increase of $93.9 million, or 2%, compared with net revenues of $4,078.5 million for the prior year. The increase in
net revenues is primarily attributable to an increase in ship set deliveries in 2010 for the Boeing B737 as compared
to 2009 as the lingering effects of the IAM Strike at Boeing impacted the first quarter 2009 deliveries. In addition,
2010 deliveries for the Boeing B787 also increased driven by customer delivery schedule. Non-recurring revenues,
which are derived primarily from engineering and design efforts, were $297.0 million and $328.0 million for each
of the twelve month periods ended December 31, 2010 and December 31, 2009, respectively. Favorable volumebased pricing adjustments of $38.0 million were recorded in 2009 as a result of lower deliveries due to the IAM
Strike at Boeing as compared with $5.2 million of such adjustments recorded during the same period of 2010. The
strengthening dollar during 2010 resulted in an $8.4 million decrease in the value of net revenues from Spirit
Europe. Deliveries to Boeing increased by 3% to 480 ship sets during 2010 compared to 466 ship sets delivered in
the prior year, mostly due to increases in B737 and B787 ship set deliveries, partially offset by a decrease in B777
ship set deliveries driven by customer delivery schedule. Deliveries to Airbus decreased by 12% to 458 ship sets
during 2010 compared to 519 ship sets delivered in the prior year due to a 2010 customer delivery re-phasing at
Spirit Europe which reduced third quarter A320 deliveries. We re-aligned with customer A320 delivery levels in the
fourth quarter of 2010. In total, ship set deliveries decreased 7% to 957 ship sets in 2010 compared to 1,029 ship sets
for the same period in the prior year. This was primarily attributable to reduced deliveries of Hawker, A320 and
A330 ship sets, which are not a significant source of revenue, partially offset by increased Boeing ship set deliveries.
Approximately 94% of Spirit’s net revenues for 2010 came from our two largest customers, Boeing and Airbus.
Cost of Sales. Cost of sales as a percentage of net revenues was 87% for the twelve months ended
December 31, 2010, as compared to 88% in the prior year. The decrease in 2010 is primarily due to the absence of
unusual charges recorded in 2009, consisting of $103.9 million related to a forward loss on our G250 contract and
the Cessna Citation Columbus program termination, as well as an unfavorable cumulative catch-up adjustment of
$58.5 million in 2009. During 2010, we recorded expenses of approximately $18.9 million associated with the
shares granted to eligible IAM-represented employees at the ratification of a new ten-year agreement on June 25,
2010, $6.5 million in early retirement incentives accepted by IAM-represented employees in the third quarter of
2010 also in accordance with the new ten-year contract, and $3.3 million associated with shares granted to eligible
UAW-represented employees at the ratification of a new ten-year contract on December 18, 2010. We updated our
2010 contract profitability estimates resulting in an unfavorable cumulative catch-up adjustment of $23.2 million
driven by a $5.2 million charge on our Hawker 850XP contract related to the decision to exit the program,
$7.1 million unfavorable cumulative catch-up adjustment related to periods prior to 2010 on our Sikorsky CH-53K
contract as a result of additional costs required to meet test hardware schedules, and $6.5 million recorded in the
Propulsion segment primarily driven by the fourth quarter of 2010 comprehensive analysis of our 787 contract,
during which we revised our contract estimates to reflect a break even margin, partially offset by favorable
performance trends on mature programs. We also recorded a $2.8 million forward loss charge for tooling contracts
for the G250 program in 2010. In addition to these specific charges, we continue to experience lower profitability on
follow-on production blocks that began in the fourth quarter of 2009.
In January 2010, we adopted a change in accounting estimate which extended the useful lives of certain assets.
The effect of this change was a decrease in depreciation charges of $14.6 million to inventory for 2010, which will
eventually flow through cost of sales following the process for contract accounting.
SG&A, Research and Development. Combined SG&A and Research and Development costs as a percentage
of net revenues were 5% for both of the twelve month periods ended December 31, 2010 and December 31, 2009.
SG&A expense increased $18.9 million, or 14%, primarily due to early retirement incentives offered in 2010, as
well as additional SG&A expenses incurred as we expanded our global footprint to Malaysia, North Carolina and
France. In addition, we recognized $7.9 million in stock compensation expense in SG&A during the twelve months
ended December 31, 2010, as compared to $9.7 million during the same period in the prior year. Research and
54
Development expenses for the twelve months ended December 31, 2010 were down $5.2 million, or 9% compared
to the same period in the prior year due to the completion of certain A350 related R&D work in 2009.
Operating Income. Operating income for the twelve months ended December 31, 2010, was $357.0 million,
an increase of $53.7 million, or 18%, compared to operating income of $303.3 million for the prior year. Operating
income increased in 2010 primarily due to the absence of charges similar in nature to those recorded in the second
quarter of 2009, that are discussed above, partially offset by the decrease in volume-based pricing adjustments
recorded in 2010, the stock award charge recorded in 2010 related to the ratification by IAM-represented employees
as the result of a new ten-year agreement, charges associated with the early retirement incentives offered in 2010 as
part of that contract, and the stock award charge recorded in 2010 related to the ratification by UAW-represented
employees of a new ten-year agreement. Operating margins continued to reflect the reduced profitability on followon production blocks as compared with 2009.
Interest Expense and Financing Fee Amortization. Interest expense and financing fee amortization for the
twelve months ended December 31, 2010, includes $51.1 million of interest and fees paid or accrued in connection
with long-term debt and $8.0 million in amortization of deferred financing costs, as compared to $37.1 million of
interest and fees paid or accrued in connection with long-term debt and $6.5 million in amortization of deferred
financing costs in the prior year. In June 2009, the Company amended its credit facility which resulted in an increase
in amortized deferred financing costs. The increase in interest expense in 2010 was primarily driven by interest on
the senior unsecured notes issued at the end of the third quarter in 2009, partially offset by interest incurred on the
drawn portion of the revolver in 2009. The increase in deferred financing fees was primarily the result of a full-year
discount amortization in 2010 on the notes issued in the third quarter of 2009.
Interest Income. Interest income for the twelve months ended December 31, 2010 was $0.3 million, as
compared to $7.0 million for the same period in the prior year, which included $6.5 million of accretion of the
discounted long-term receivable from Boeing for capital expense reimbursement pursuant to the Asset Purchase
Agreement for the Boeing Acquisition. The last of these payments for capital reimbursement was made by Boeing
to the Company in 2009.
Other Income (Expense). Other income (expense) for 2010 included expense of ($5.0) million due to
changes in foreign exchange rates on intercompany activity and borrowings, as compared to income of $2.3 million
for the same period in the prior year. The increase in expense was driven primarily by the intercompany payable
from Spirit Europe to Spirit related to our A350 XWB program, as well as trade payables and borrowings. Should
these balances increase, they will be more susceptible to changes in exchange rates.
Provision for Income Taxes. Our reported tax rate includes two principal components: an expected annual tax
rate and discrete items resulting in additional provisions or benefits that are recorded in the quarter that an event
arises. Events or items that give rise to discrete recognition could include finalizing audit examinations for open tax
years, statute of limitations expiration, or a stock acquisition.
The income tax provision for the twelve months ended December 31, 2010, was $78.2 million compared to
$80.9 million for the prior year. The 2010 effective tax rate was 26.3% as compared to 29.7% for 2009. The decrease
in the effective tax rate recorded for 2010 is related primarily to settling the 2005 and 2006 U.S. federal
examinations, additional state income tax credits, and our tax holiday in Malaysia. The decrease from the
U.S. statutory tax rate is attributable primarily to the U.S. federal research tax credit, qualified domestic production
activities deduction, state income tax credits, and our tax holiday in Malaysia.
55
Segments. The following table shows segment revenues for the twelve months ended December 31, 2010,
December 31, 2009 and December 31, 2008:
Twelve Months
Ended
December 31,
2010
Twelve Months
Ended
December 31,
2009
($ in millions)
Twelve Months
Ended
December 31,
2008
$2,035.1
1,061.8
1,067.4
8.1
$2,003.6
1,030.0
1,024.4
20.5
$1,758.4
1,031.7
955.6
26.1
$4,172.4
$4,078.5
$3,771.8
Fuselage Systems . . . . . . . . . . . . . . . . . . . . . . . . . .
Propulsion Systems . . . . . . . . . . . . . . . . . . . . . . . . .
Wing Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 292.3
137.5
101.0
(1.8)
$ 287.6
122.6
20.7
(1.4)
$ 287.6
162.2
99.7
0.3
Unallocated corporate SG&A . . . . . . . . . . . . . . . . . .
Unallocated research and development . . . . . . . . . . .
Unallocated cost of sales(1) . . . . . . . . . . . . . . . . . . .
529.0
(139.7)
(3.6)
(28.7)
429.5
(122.7)
(3.5)
—
Segment Revenues
Fuselage Systems . . . . . . . . . . . . . . . . . . . . . . . . . .
Propulsion Systems . . . . . . . . . . . . . . . . . . . . . . . . .
Wing Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating income . . . . . . . . . . . . . . . . . . . . .
$ 357.0
$ 303.3
549.8
(141.7)
(2.4)
—
$ 405.7
contract on June 25, 2010, early retirement incentives for members represented by the IAM who made elections
to retire in 2010, and grants of shares to employees represented by the UAW in connection with the ratification
of a new ten-year labor contract on December 18, 2010.
Fuselage Systems, Propulsion Systems, Wing Systems and All Other represented approximately 49%, 25%,
26% and less than 1% respectively, of our net revenues for the twelve months ended December 31, 2010. Fuselage
Systems, Propulsion Systems, Wing Systems and All Other represented approximately 55%, 26%, 19% and less
than 1%, respectively, of our operating income before unallocated corporate expenses for the year ended
December 31, 2010.
Fuselage Systems. Fuselage Systems segment net revenues for the twelve months ended December 31, 2010,
were $2,035.1 million, an increase of $31.5 million, or 2%, compared to the same period in the prior year. This
reflects an increase in deliveries of B737 and B787 ship sets in 2010, partially offset by a decrease in deliveries of
B777 ship sets in 2010, as compared to the prior year. Fuselage Systems posted segment operating margins of 14%
for each of the twelve month periods ended December 31, 2010 and December 31, 2009. Lower overall margins on
follow-on production blocks impacted segment operating margins in 2010, while a $10.9 million charge for the
Cessna Citation Columbus program termination and an unfavorable cumulative catch-up of $29.9 million were
recorded in 2009 related to periods prior to 2009. During 2010, the segment realized an unfavorable cumulative
catch-up adjustment of $7.2 million related to periods prior to 2010, primarily driven by additional costs required to
meet test hardware schedules on the Sikorsky CH-53K program, partially offset by favorable performance on
mature programs.
Propulsion Systems. Propulsion Systems segment net revenues for the twelve months ended December 31,
2010 were $1,061.8 million, an increase of $31.8 million, or 3%, as compared to the same period in the prior year.
This reflects an increase in deliveries of B737 and B787 ship sets in 2010, partially offset by a decrease in deliveries
56
of B777 ship sets in 2010, as compared to the prior year. Propulsion Systems posted segment operating margins of
13% for the twelve months ended December 31, 2010 as compared to 12% for the same period in the prior year.
Lower overall margins on follow-on production blocks impacted segment operating margin in 2010, while an
unfavorable cumulative catch-up adjustment of $22.4 million was recorded in 2009 related to periods prior to 2009.
During 2010, the segment realized an unfavorable cumulative catch-up adjustment of $6.5 million related to periods
prior to 2010, primarily driven by the fourth quarter of 2010 comprehensive analysis of our 787 contract, during
which we revised our contract estimates to reflect a break even margin.
Wing Systems. Wing Systems segment net revenues for the twelve months ended December 31, 2010, were
$1,067.4 million, an increase of $43.0 million, or 4%, as compared to the same period in the prior year. This reflects
an increase in revenues related to engineering and development work on our new programs. Wing Systems posted
operating margins of 10% for 2010, as compared to 2% in the prior year, primarily due to the $90.5 million forward
loss charge on the G250 contract recorded during 2009 and an unfavorable cumulative catch-up adjustment of
$6.2 million recorded in 2009 related to periods prior to 2009. During 2010, the segment realized an unfavorable
cumulative catch-up adjustment of $9.5 million related to periods prior to 2010.
All Other. All Other segment net revenues consist of sundry sales of miscellaneous services, tooling
contracts, and revenues from KIESC. In the twelve months ended December 31, 2010, All Other segment net
revenues were $8.1 million, a decrease of $12.4 million, or 60%, as compared to the same period in the prior year.
The decrease in net revenues was primarily driven by a decrease in third party tooling sales. The All Other segment
recorded negative operating margins in both years due to an additional forward loss charge on a tooling contract for
the G250 program of $2.5 million in 2009 and $2.8 million in 2010.
Net Revenues. Net revenues for the twelve months ended December 31, 2009, were $4,078.5 million, an
increase of $306.7 million, or 8%, compared with net revenues of $3,771.8 million for the prior year. The increase in
net revenues is primarily attributable to an increase in ship set deliveries for large commercial aircraft caused in part
by the reduction in deliveries in 2008 that resulted from the IAM Strike at Boeing. Ship set deliveries to Boeing
increased 13% to 466 ship sets during the twelve months ended December 31, 2009, compared to 414 ship sets in
2008. Ship set deliveries for Airbus increased 10% to 519 ship sets during the twelve months ended December 31,
2009, compared to 473 ship sets in 2008. In total, for the twelve months ended December 31, 2009, we delivered
1,029 ship sets compared to 978 ship sets delivered in 2008, a 5% increase. Approximately 96% of Spirit’s net
revenues for the twelve months ended December 31, 2009 came from our two largest customers, Boeing and Airbus.
Cost of Sales. Cost of sales as a percentage of net revenues was 88% for the twelve months ended
December 31, 2009, as compared to 84% the prior year. The increase in cost of sales in 2009 was due primarily to
several unusual charges recorded in the second quarter, including a $93.0 million forward loss charge for the
Gulfstream G250 business jet program and the $10.9 million impact of the Cessna Citation Columbus termination.
During 2009, Spirit updated its contract profitability estimates resulting in aggregate unfavorable cumulative
catch-up adjustments of $58.5 million related to periods prior to 2009 to reflect, among other things, post-strike
production ramp up as a result of the IAM Strike at Boeing, nutplate rework, transition to a new enterprise resource
planning (ERP) system, higher than forecasted costs on contract blocks completed in December 2009 and higher
than expected costs on the Sikorsky CH-53K program. Unfavorable cumulative catch-up adjustments totaling
$22.6 million were recorded in 2008 related to periods prior to 2008, driven primarily by lower forecasted pension
income and impact of the IAM Strike at Boeing.
SG&A, Research and Development. Combined SG&A, Research and Development costs as a percentage of
net revenues were 4.8% and 5.4% for the twelve months ended December 31, 2009 and December 31, 2008,
respectively, despite lower net revenues in 2008 as a result of the IAM Strike at Boeing. SG&A expenses for the
twelve months ended December 31, 2009, were lower as a percentage of net revenues due primarily to a reduction in
incentive compensation and lower stock compensation expenses. In 2009, we recognized $9.7 million in stock
compensation expense in SG&A as compared to $15.3 million in 2008. Research and Development costs for 2009
were $56.7 million as compared to $48.4 million in 2008 due to an increase in B787 derivative activities and A350
tooling activities.
57
Operating Income. Operating income for the twelve months ended December 31, 2009, was $303.3 million,
a decrease of $102.4 million, or 25%, compared to operating income of $405.7 million for the prior year. The
decrease is primarily attributable to unusual charges incurred in the second quarter of 2009, including a
$93.0 million forward loss charge for the Gulfstream G250 business jet program, the $10.9 million impact of
the Cessna Citation Columbus termination, and the realization of larger unfavorable cumulative catch-up adjustments totaling $58.5 million related to periods prior to 2009, partially offset by increased delivery rates for large
commercial aircraft.
Interest Expense and Financing Fee Amortization. Interest expense and financing fee amortization for the
twelve months ended December 31, 2009, includes $37.1 million of interest and fees paid or accrued in connection
with long-term debt and $6.5 million in amortization of deferred financing costs, as compared to $34.5 million of
interest and fees paid or accrued in connection with long-term debt and $4.7 million in amortization of deferred
financing costs in the prior year. The increase in interest expense associated with long-term debt in 2009 was
primarily driven by interest related to the senior unsecured bonds that we issued at the end of the third quarter of
2009, partially offset by lower LIBOR rates on the floating portion of our Term B loan. The increase in deferred
financing costs was a result of increased amortized costs associated with the amendment and restatement of our
senior credit facility.
Interest Income. Interest income for the twelve months ended December 31, 2009, consisted of $6.5 million
of accretion of the discounted long-term receivable from Boeing for capital expense reimbursement pursuant to the
Asset Purchase Agreement for the Boeing Acquisition and $0.5 million of interest income compared to
$16.2 million of accretion of the discounted long-term receivable and $2.4 million of interest income for the
prior year. The decrease of $11.6 million as compared to the twelve months ended December 31, 2008 was
primarily due to lower accretion income as a result of a lower outstanding balance on the discounted long-term
receivable which was collected in full in December 2009 and lower interest rates on interest bearing accounts.
Provision for Income Taxes. Our reported tax rate includes two principal components: an expected annual tax
rate and discrete items resulting in additional provisions or benefits that are recorded in the quarter that an event
arises. Events or items that give rise to discrete recognition could include finalizing audit examinations for open tax
years, a statute of limitations expiration, or a stock acquisition.
The income tax provision for the twelve months ended December 31, 2009, was $80.9 million compared to
$118.5 million for the prior year. The 2009 effective tax rate was 29.7% as compared to 30.9% for 2008. The
decrease in the effective tax rate recorded for 2009 is related primarily to additional U.S. federal research and
experimentation tax credits. The decrease from the U.S. statutory tax rate is attributable primarily to the U.S. federal
research and experimentation tax credit and the qualified domestic production activities deduction.
Segments. Segment operating income before unallocated expenses for the twelve months ended
December 31, 2009 included several unusual charges, including a $93.0 million forward-loss charge for the
Gulfstream G250 business jet program, an unfavorable cumulative catch-up adjustment of $39.0 million, the
$10.9 million impact of the Cessna Citation Columbus program termination, and increased R&D spending on new
programs. Fuselage Systems, Propulsion Systems, Wing Systems and All Other represented approximately 49%,
25%, 25% and 1%, respectively, of our net revenues for the twelve months ended December 31, 2009. Revenues
attributable to Airbus are recorded within Wing Systems. Fuselage Systems, Propulsion Systems, Wing Systems
and All Other represented approximately 67%, 28%, 5% and less than 1%, respectively, of our operating income
before unallocated corporate expenses for the year ended December 31, 2009.
Fuselage Systems. Fuselage Systems segment net revenues for the twelve months ended December 31, 2009,
were $2,003.6 million, an increase of $245.2 million, or 14%, compared with Fuselage Systems segment net
revenues of $1,758.4 million for the prior year. This reflects an increase in deliveries for most Boeing large
commercial aircraft programs in 2009 due to the IAM Strike in late 2008 and delivery of eleven B787 forward
fuselage sections in 2009 as compared with three deliveries in the prior year, partially offset by fewer deliveries of
B747 units. Fuselage Systems recorded segment operating margins of 14% for the twelve months ended
December 31, 2009, as compared to 16% reported for the prior year as net unfavorable cumulative catch-up
adjustments of $29.9 million were realized during 2009 related to periods prior to 2009, primarily driven by poststrike production ramp-up as a result of the IAM Strike in late 2008, nutplate rework, transition to a new ERP
58
system, higher than forecasted costs on contract blocks completed in December 2009, and higher than expected
costs on the Sikorsky CH-53K program. In addition, a $10.9 million charge for the termination of the Cessna
Citation Columbus program was recorded during 2009. Unfavorable cumulative catch-up adjustments of $10.7 million were recorded in 2008 related to periods prior to 2008.
Propulsion Systems. Propulsion Systems segment net revenues for the twelve months ended December 31,
2009, were $1,030.0 million, which were essentially flat compared with Propulsion Systems segment net revenues
of $1,031.7 million for the prior year. This reflects an increase in deliveries for most Boeing large commercial
aircraft programs in 2009 due to the IAM Strike in late 2008, partially offset by fewer B747 units. Propulsion
Systems recorded segment operating margins of 12% for the twelve months ended December 31, 2009, as compared
to 16% reported for the prior year as net unfavorable cumulative catch-up adjustments of $22.4 million were
realized during 2009 related to periods prior to 2009, primarily driven by disruption related to the post-strike
production ramp-up as a result of the IAM Strike in late 2008. In addition, lower aftermarket sales were realized
year over year. Unfavorable cumulative catch-up adjustments of $4.4 million were recorded in 2008 related to
periods prior to 2008.
Wing Systems. Wing Systems segment net revenues for the twelve months ended December 31, 2009, were
$1,024.4 million, an increase of $68.8 million, or 7%, compared with Wing Systems segment net revenues of
$955.6 million for the prior year. This reflects increased non-recurring revenues related to engineering and
development work on our new programs. Wing Systems recorded segment operating margins of 2% for the twelve
months ended December 31, 2009 as compared to 10% reported for the prior year due primarily to a $90.5 million
forward loss charge for the Gulfstream G250 business jet program recorded in the second quarter of 2009, as well as
net unfavorable cumulative catch-up adjustments of $6.2 million realized in 2009 related to periods prior to 2009.
Unfavorable cumulative catch-up adjustments of $7.5 million were recorded in 2008 related to periods prior to
2008.
All Other. All Other segment net revenues consist of sundry sales of miscellaneous services, tooling
contracts, and revenues from KIESC. In the twelve months ended December 31, 2009, All Other segment net
revenues were $20.5 million, a decrease of $5.6 million, or 21%, compared with $26.1 million for the prior year.
The decrease in net revenues for the twelve months ended December 31, 2009, was primarily driven by a decrease in
third party tooling sales. The All Other segment recorded operating margins of (7%) for the twelve months ended
December 31, 2009 as compared to 1% for the prior year. The decrease in margins was primarily due to a
$2.5 million charge recorded in the second quarter of 2009 related to tooling for the Gulfstream G250 business jet
program.
Liquidity and Capital Resources
The primary sources of our liquidity include cash flow from operations, which include advance payments and
receivables from customers, borrowings available under our revolving credit facility and proceeds from our bond
issuances. Our liquidity requirements and working capital needs depend on a number of factors, including delivery
rates and payment terms under our contracts, the level of research and development expenditures related to new
programs, capital expenditures, growth and contractions in the business cycle, contributions to our union-sponsored
benefit plans and interest and principal payments on our indebtedness.
As of December 31, 2010, we had $481.6 million of cash and cash equivalents on the balance sheet and
$631.1 million of available borrowing capacity under our revolving credit facility. Based on our planned levels of
operations and our strong liquidity position, we currently expect that our cash on hand, cash flow from operations
and borrowings available under our revolving credit facility will be sufficient to fund our operations, inventory
growth (as discussed below), planned capital investments, research and development expenditures and scheduled
debt service payments for at least the next twelve months.
59
Cash Flows
The following table provides a summary of our cash flow for the years ended December 31, 2010,
December 31, 2009, and December 31, 2008:
For the Twelve Months Ended
December 31, 2010
December 31, 2009
December 31, 2008
($ in millions)
Net income . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income . . .
Changes in working capital . . . . . . . . . .
$ 218.9
184.9
(278.7)
$ 191.7
162.4
(368.0)
$ 265.4
108.0
(162.7)
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) investing activities . . . .
Net cash provided by financing activities . .
125.1
(288.4)
277.4
(13.9)
(112.4)
276.1
210.7
(119.8)
3.5
Effect of exchange rate change on cash
and cash equivalents . . . . . . . . . . . . . . .
(1.5)
2.7
(11.3)
Net increase in cash and cash
equivalents for the period . . . . . . . . . .
Cash and cash equivalents, beginning of
period . . . . . . . . . . . . . . . . . . . . . . . .
112.6
152.5
83.1
369.0
216.5
133.4
Cash and cash equivalents, end of
period . . . . . . . . . . . . . . . . . . . . . . . .
$ 481.6
$ 369.0
$ 216.5
Operating Activities. For the twelve months ended December 31, 2010, we had a net cash inflow of
$125.1 million from operating activities, an increase of $139.0 million compared to a net cash outflow of
$13.9 million for the same period in the prior year. The increase in cash provided by operating activities in 2010 was
primarily due to higher net income, the slowing of new program inventory growth on programs other than B787
(which is ramping up production), and a payment received in the fourth quarter of 2010 as a result of the
memorandum of agreement and settlement agreement between Spirit and Boeing relating to the B787 contract. This
overall improvement was partially offset by a decrease in advance payments as increased deliveries of the B787
liquidated advances previously received, and a decline in accounts payable and accrued liabilities in 2010. In 2009,
we benefited from a change in accounts payable terms which occurred in the first quarter of 2009. Our overall trend
of inventory growth is driven primarily by our contractually required investments in new programs which include
the Boeing B787, Gulfstream G250 and G650, Airbus A350 XWB, Sikorsky CH-53K and Rolls Royce BR725
programs. The contracts for these new programs accounted for an increase in inventory in 2010 of $385.9 million, as
compared to an increase of $317.3 million in 2009. We expect these programs will continue to drive inventory
growth as we incur additional up-front costs to produce initial units, which traditionally have a higher cost. The
mature Boeing and Airbus program inventories decreased $48.6 million in 2010 as compared with a $2.3 million
increase for these contracts in 2009. In 2010, inventory balances decreased $36.3 million on remaining programs,
including non-program specific inventory, as compared to an increase in inventory balances of $5.4 million for the
same period in the prior year.
As a component of the increase in inventory, the amount related to the B787 program increased by
$218.8 million in 2010 compared to an increase of $128.0 million in the same period of 2009. Deferred production
balances increased by $226.4 million in 2010 compared to $243.5 million in the same period of 2009 as a result of
delivery of sixteen B787 ship sets in 2010 as compared to eleven ship sets in the same period of 2009. Deferred
production per unit also decreased reflecting the decreasing manufacturing cost per unit. Deferred production costs
represent the deferral of excess-over-average costs over the production block. The revenue we recognized upon
delivery of B787 ship sets in both 2010 and 2009 did not result in cash receipts, resulting instead in the liquidation of
customer advances. This will continue until cash payments for the B787 units resume, which is expected to occur
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prior to the delivery of the 50th unit. Additionally, increases in inventory related to the B787 will continue to
consume incremental amounts of cash until the cost to build a ship set falls below the ship set price recognized at
delivery.
Investing Activities. For the twelve months ended December 31, 2010, we had a net cash outflow of
$288.4 million from investing activities, an increase in outflow of $176.0 million, as compared to a net cash outflow
of $112.4 million for the same period in the prior year. The primary driver in the increased use of cash between
periods was the final payment of the long-term receivable from Boeing in December 2009, which resulted in a cash
benefit of $115.4 million in 2009 with no corresponding benefit in 2010. During 2010, we invested $288.1 million
in property, plant and equipment, software and program tooling, which was $59.9 million higher than during the
same period in the prior year, as the result of set-up of our facilities in Kinston, North Carolina and Saint-Nazaire,
France.
Financing Activities. For the twelve months ended December 31, 2010, we had a net cash inflow of
$277.4 million from financing activities, an increase in cash flow of $1.3 million, compared to a net cash inflow of
$276.1 million for the same period in the prior year. We received proceeds of $300.0 million and $293.4 million, net
of the bond discount, from bond issuances in 2010 and 2009, respectively, partially offset by additional deferred
financing costs associated with the bond offerings. Spirit repaid $150.0 million and $200.0 million of borrowings
under its senior secure credit facility using a portion of the bond proceeds in 2010 and 2009, respectively.
Operating Activities. For the twelve months ended December 31, 2009, we had a net cash outflow of
$13.9 million from operating activities, a decrease of $224.6 million, as compared to a net cash inflow of
$210.7 million in the prior year. The decrease in cash provided from operations in 2009 was primarily due to lower
net income and recognition of net customer advances and net deferred revenue of $(112.3) million as compared to
$435.1 million of customer advances and deferred revenue received in 2008 related to the B787 and A350 XWB
programs. While the overall change in inventory balance related to the B787 program increased by $128.0 million in
2009 compared to an increase of $241.0 million in 2008, deferred production costs increased by $243.5 million in
2009 and $132.0 million in 2008 as a result of delivery of eleven B787 ship sets in 2009 as compared to three in
2008. Deferred production costs represent the deferral of excess-over-average costs over the production block. The
revenue we recognized upon delivery of B787 ship sets in 2009 did not result in cash receipts, resulting instead in
the liquidation of customer advances. This will continue until cash payments for the B787 units resume, prior to the
delivery of the 50th unit. Additionally, increases in inventory related to the B787 will continue to consume
incremental amounts of cash until the cost to build a ship set falls below the ship set price recognized at delivery.
Increased spending on new programs year-over-year also had an impact of $189.3 million on inventory.
Investing Activities. For the twelve months ended December 31, 2009, we had a net cash outflow of
$112.4 million related to investing activities, a $7.4 million decrease, as compared to a cash outflow of
$119.8 million in the prior year. During 2009, we invested $228.2 million in property, plant and equipment,
software and program tooling, which was $7.6 million lower than during the same period in the prior year, partially
offset by a slight decrease in Boeing payments to Spirit attributable to the acquisition of title of various tooling and
other capital assets. The last of these payments were received in December 2009.
Financing Activities. For the twelve months ended December 31, 2009, we had a net cash inflow of
$276.1 million related to financing activities, a $272.6 million increase, as compared to a $3.5 million cash inflow in
the prior year. This was due primarily to the receipt of $293.4 million in net proceeds received from Spirit’s bond
offering in the third quarter of 2009, partially offset by additional deferred financing costs associated with the bond
offering. Spirit repaid $200.0 million of borrowings under its existing senior secured revolving credit facility using a
portion of the bond proceeds.
Future Cash Needs and Capital Spending
Our primary future cash needs will consist of working capital, debt service, research and development and
capital expenditures. We expend significant capital on research and development during the start-up phase of new
programs, to develop new technologies for next generation aircraft and to improve the manufacturing processes of
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aircraft already in production. Research and development expenditures totaled approximately $51.5 million and
$56.7 million for the twelve months ended December 31, 2010 and December 31, 2009, respectively.
We anticipate reaching maximum capacity for certain programs, and are evaluating various plans to relieve
capacity constraints for the announced customer production rate increases. Capital expenditures totaled approximately $288.1 million and $228.2 million for the twelve months ended December 31, 2010 and December 31,
2009, respectively. We expect to fund future capital expenditures from cash on hand, from operations and
borrowings available under our revolving credit facility.
Tax Payments
Total tax payments, net of refunds, were $34.9 million in 2010, $95.7 million in 2009 and $115.4 million in
2008. Year to year changes are due to changes in legislation and levels and mix of taxable income.
Pension and Other Post — Retirement Benefit Obligations
Our U.S. pension plan remained fully funded at year-end 2010. As a result of the plan’s asset performance
during 2010, we now expect a decrease in non-cash pension income in future periods. Our plan investments are
broadly diversified and we do not anticipate a near-term requirement to make cash contributions to our U.S. pension
plan. We continue to make contributions to our U.K. pension plan. Our projected contributions to the U.K. pension
plan for 2011 are $7.3 million.
Debt and Other Financing Arrangements
Senior Secured Credit Facilities. We are a party to a credit agreement that consists of a senior secured term
loan and a senior secured revolving line of credit. On October 15, 2010, we entered into Amendment No. 3 to the
credit agreement. As a result of the amendment, among other things, the revolving credit commitment was
increased from $408.8 million to $650.0 million and the maturity date of the revolving credit commitment was
extended to September 30, 2014. The credit agreement amendment also extended the maturity date for
$437.4 million of the outstanding term loan to September 30, 2016. The maturity date for the $130.2 million
balance of the outstanding term loan remains September 30, 2013. The entire asset classes of Spirit, including
inventory and property, plant and equipment, are pledged as collateral for both the term loan and the revolving credit
facility. As of December 31, 2010, we were and expect to continue to be in full compliance with all covenants
contained within our credit agreement. As of December 31, 2010, approximately $566.1 million was outstanding
under the term loan, no borrowings were outstanding under the revolving credit facility and $18.9 million of letters
of credit were outstanding.
Revolving credit borrowings bear interest at a rate equal to, at Spirit’s option, (a) a base rate determined by
reference to the highest of (1) the prime rate of our administrative agent (currently Bank of America, N.A.), (2) the
federal funds rate plus 1⁄2 of 1.0%, and (3) LIBOR for an interest period of one month commencing on such date plus
1.0%, in each case plus an applicable margin, or (b) a LIBOR rate determined by reference to the cost of funds for
U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, plus an
applicable margin. As of the issue date, the applicable margin with respect to base rate borrowings under this
portion of the revolving credit facility is 2.50% and the applicable margin with respect to LIBOR rate borrowings
under this portion of the revolving credit facility is 3.50%. The applicable margin for borrowings under this portion
of the revolving credit facility are subject to adjustment based on our consolidated total leverage, and may range
from 2.00% to 3.00% with respect to base rate borrowings and from 3.00% to 4.00% with respect to LIBOR rate
borrowings. At December 31, 2010, the Company’s total leverage ratio was 2.37:1.0 resulting in applicable margins
of 3.5% per annum on LIBOR borrowings on Extending Revolving Loans and margins of 2.5% per annum on
alternative base rate borrowings on Extending Revolving Loans.
In addition to paying interest on outstanding principal under the senior secured credit facility, Spirit is required
to pay an unused line fee of 75 basis points on the unused portion of the commitments under the revolving credit
facility. Spirit is required to pay participation fees equal to the applicable margin for LIBOR rate revolving credit
borrowings with respect to letters of credit issued under the revolving credit facility. Spirit is also required to pay to
62
the issuing banks under its senior secured credit facility letter of credit fronting fees in respect of letters of credit
equal to 25 basis points per year, and to the administrative agent thereunder customary administrative fees.
Senior Notes. On November 18, 2010, we issued $300.0 million aggregate of 63/4% Senior Notes due 2020
(the “2020 Notes”), with interest payable on June 15 and December 15 of each year, beginning June 15, 2011. The
2020 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the
Company and Spirit’s existing and future domestic subsidiaries that guarantee Spirit’s obligations under Spirit’s
senior secured credit facility. The Company used the proceeds to repay borrowings under its existing senior secured
revolving credit facility without any reduction of the lenders’ commitment thereunder, for general corporate
purposes and to pay fees and expenses incurred in connection with the offering. The carrying value of the 2020
Notes was $300.0 million as of December 31, 2010.
On September 30, 2009, we issued $300.0 million of 71⁄2% Senior Notes due October 1, 2017 (the “2017
Notes”), with interest payable on April 1 and October 1 of each year, beginning April 1, 2010. The 2017 Notes are
fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company and Spirit’s
existing and future domestic subsidiaries that guarantee Spirit’s obligations under Spirit’s senior secured credit
facility. The carrying value of the 2017 Notes was $294.2 million as of December 31, 2010.
As of December 31, 2010, we were and expect to continue to be in full compliance with all covenants contained
in the indentures govering the 2020 Notes and the 2017 Notes.
Advances and Deferred Revenue on the B787 Program. We are required to repay Boeing a 2007 interest free
cash advance of $700.0 million made to us under the original B787 Supply Agreement, in the amount of a
$1.4 million offset against the purchase price of each of the first five hundred B787 ship sets delivered to Boeing. In
the event that Boeing does not take delivery of five hundred B787 ship sets prior to the termination of the aircraft
program, any advances not then repaid will first be applied against any outstanding B787 payments then due by
Boeing to us, with any remaining balance to be repaid at the rate of $84.0 million per year beginning in the year in
which we deliver our final B787 production ship set to Boeing, prorated for the remaining portion of the year in
which we make our final delivery.
to us, with any remaining balance repaid beginning the year in which we deliver our final B787 production ship set
to Boeing, with the full amount to be repaid no later than the end of the subsequent year.
things, require Boeing to make additional advances to Spirit for certain non-recurring derivatives and mission
improvement (D/MI) work. These additional advances will be paid to Spirit quarterly for non-recurring work, in
amounts determined pursuant to pricing provisions set forth in the agreement, and will be recovered over future
units. In the event that Boeing does not take delivery of a sufficient number of ship sets to recover these additional
advances by the end of 2021, Spirit would be required to repay any outstanding balance in six equal annual
installments. The first D/MI advance payment was made to Spirit in August 2009, with subsequent payments each
quarter thereafter.
In December 2010, Spirit and Boeing entered into a memorandum of agreement and a settlement agreement.
As part of these agreements, Spirit received a payment in December which has been recorded as deferred revenue
(short-term) within the consolidated balance sheet pending finalization of a contract amendment which would
contain the final settlement terms for claims under the B787 contract between Spirit and Boeing. If the final contract
amendment is not agreed to by the second quarter of 2011, Boeing may require reimbursement or set-off of the
payment over a short or long-term period of time. This final amendment may contain provisions that alter the
63
current structure of repayment for the advances described in the section captioned “Risk Factors” in this Annual
Report.
North Carolina Grant. On May 14, 2008, we entered into an Inducement Agreement, a Construction Agency
Agreement and a Lease Agreement with The North Carolina Global TransPark Authority (“GTPA”) for the
construction and lease of a manufacturing facility in Kinston, North Carolina (the “NC Facility”). The lease is for an
initial term of 22 years, with options for up to four additional 20-year terms, and provides nominal rental payments.
The grand opening of the facility was held July 1, 2010. Construction was funded from a $100.0 million grant,
awarded to GTPA by the Golden L.E.A.F. (Long-Term Economic Advancement Foundation), Inc. Under the
agreements, Spirit is obligated to make a minimum capital investment of $80.0 million by 2014. Failure to make the
additional required investment or meet certain performance criteria, including creation of targeted number of jobs,
will result in additional payments to GTPA in future periods. As of December 31, 2010, $100.0 million of the grant
funding had been disbursed and $100.0 million of Spirit’s obligated capital investment had been made, and we
expect to meet all performance criteria. We currently manufacture a portion of the fuselage and the Composite Front
Spar for the new Airbus A350 XWB aircraft at the NC Facility.
Malaysian Facility Agreement. On June 2, 2008, Spirit Malaysia entered into a Facility Agreement (“Facility
Agreement”) for a term loan facility for Ringgit Malaysia RM69.2 million (approximately USD $20.0 million
equivalent) (the “Malaysia Facility”), with the Malaysian Export-Import Bank. The Malaysia Facility requires
quarterly principal repayments of RM3.3 million (USD $1.0 million equivalent) from September 2011 through May
2017 and quarterly interest payments payable at a fixed interest rate of 3.5% per annum. The Malaysia Facility loan
balance as of December 31, 2010 was $18.2 million.
French Factory Capital Lease Agreement. On July 17, 2009, the Company’s indirect wholly-owned
subsidiary, Spirit AeroSystems France SARL (“Spirit France”) entered into a capital lease agreement for
A9.0 million (approximately US $13.1 million equivalent) with BNP Paribas Bank (“BNP”) to be used towards
the construction of an assembly plant in Saint-Nazaire, France (the “Saint-Nazaire Project”). The Saint-Nazaire
Project was completed in the fourth quarter of 2010 and is expected to be operational during 2011. Lease payments
are variable, subject to the three-month Euribor rate plus 2.2%. Lease payments under the agreement are due
quarterly through April 2025. As of December 31, 2010, the Company has recorded A9.0 million (approximately US
$12.4 million equivalent) in debt attributable to the capital lease transaction.
Tax Incentive Bonds. Both Spirit and the Predecessor utilized City of Wichita issued Industrial Revenue
Bonds (IRBs) to finance self-constructed and purchased real and personal property at the Wichita site. The bonds
issued in 2010, 2009, 2008, 2006, and 2005 mature ten years from issuance while the bonds issued in 1998 through
2004 mature 25 years after their issuance. Tax benefits associated with IRBs include provisions for a ten-year
complete property tax abatement and a Kansas Department of Revenue sales tax exemption on all IRB funded
purchases. Spirit and the Predecessor purchased these IRBs so they are both bondholders and debtor / lessee for the
property purchased with the IRB proceeds. Therefore, we offset the amounts invested and obligations for these
bonds on a consolidated basis.
Certain Predecessor property that was subject to Predecessor owned IRBs continues to be subject to those
IRBs. In connection with the Boeing Acquisition, the Predecessor assigned its leasehold interest in IRB funded
assets and the related bonds to a special purpose trust beneficially owned by Boeing which subleases these assets to
Spirit. Pursuant to the sublease terms, the special purpose trust will purchase the assets from the City of Wichita,
terminate the leases between the City and the Predecessor, redeem the bonds, and transfer the assets to Spirit when
these assets cease to qualify for the ten-year property tax abatement.
The face value for the bonds subleased from the special purpose trust is approximately $296.4 million. In
addition, Spirit obtained IRBs in 2005, 2006, 2008, 2009, and 2010 with a $271.2 million aggregate principal
amount. Spirit redeemed $26.9 million of IRBs issued in 2006 in 2009.
We have an incentive agreement with the Kansas Department of Commerce, pursuant to which the Kansas
Development Finance Authority issued bonds and provided loans to finance eligible projects. The program’s
purpose is to provide us with incentives to invest in the State of Kansas. To induce this investment, the Kansas
Department of Revenue will rebate certain payroll taxes until the bonds are redeemed or mature. Pursuant to offset
64
provisions in the underlying debt instruments, there are no principal or interest cash payments associated with the
bonds. As debtor, Spirit offsets the amount owed to its wholly-owned subsidiary, Spirit AeroSystems Finance, Inc.,
as bondholder. Therefore, we may offset the amounts invested and obligations for these bonds on a consolidated
basis. The $80.0 million in debt instruments will expire in December 2025.
Credit Ratings
On October 7, 2010, our corporate credit rating at Standard & Poor’s Rating Services was affirmed at BB and
our Corporate Credit rating at Moody’s Investor Service was upgraded to Ba2 from Ba3.
Our credit ratings are reviewed periodically by the rating agencies listed above.
The credit rating agencies consider many factors when assigning their ratings, such as the global economic
environment and its possible impact on our financial performance, including certain financial metrics used by the
rating agencies in determining our credit ratings. Accordingly, it is possible the rating agencies could downgrade
our credit ratings from their current levels. This could significantly influence the interest rate of any future debt
financings.
A debt security credit rating is not a recommendation to buy, sell or held a security. Each rating is subject to
revision or withdrawal at any time by the assigning rating organization. Each rating agency has its own
methodology for assigning ratings. Accordingly, each rating should be considered independent of other ratings.
Contractual Obligations
The following table summarizes our contractual cash obligations as of December 31, 2010:
Contractual Obligations(1)(2)
2011
2012
2013
2014
2015
Principal Payment on Term Loan B. . $ 5.7 $ 37.3 $100.0 $ 4.4 $ 4.4
Interest on Debt(3) . . . . . . . . . . . . . .
24.6
28.2
32.4
32.8
31.2
Long-Term Bonds. . . . . . . . . . . . . . .
—
—
—
—
—
Interest on Long-term Bonds. . . . . . .
44.2
42.8
42.8
42.8
42.8
Malaysia Loan . . . . . . . . . . . . . . . . .
1.7
3.0
3.0
3.0
3.0
Interest on Malaysia Loan . . . . . . . . .
0.8
0.6
0.4
0.3
0.2
U.K. Pension Obligation . . . . . . . . . .
7.3
—
—
—
—
Non-Cancelable Operating Lease
Payments . . . . . . . . . . . . . . . . . . .
13.4
12.2
11.3
5.4
4.2
Non-Cancelable Capital Lease
Payments(4) . . . . . . . . . . . . . . . . .
2.4
2.3
2.0
1.1
1.1
Swaps . . . . . . . . . . . . . . . . . . . . . . .
9.6
—
—
—
—
Other . . . . . . . . . . . . . . . . . . . . . . . .
0.8
0.8
0.8
0.6
—
Purchase Obligations(5) . . . . . . . . . . 123.4
35.8
28.4
27.5
4.3
Total. . . . . . . . . . . . . . . . . . . . . . . $233.9
$163.0 $221.1
$117.9
$91.2
2016
$414.3
24.4
—
42.8
3.0
0.1
—
2017 and
After
$
Total
—
—
600.0
90.6
1.5
—
—
$ 566.1
173.6
600.0
348.8
18.2
2.4
7.3
3.2
13.6
63.3
1.1
—
—
0.2
10.5
—
—
—
20.5
9.6
3.0
219.6
$489.1
$716.2
$2,032.4
(1) Does not include repayment of B787 advances or deferred revenue credits to Boeing, which are reflected in our
consolidated balance sheet as short-term and long-term liabilities.
(2) The $15.2 million of unrecognized tax benefit liability for uncertain tax positions has been excluded from this
table due to uncertainty involving the ultimate settlement period. See Note 15, Income Taxes.
(3) Interest on our Term Loan B was calculated for all years using the three month LIBOR yield curve as of
December 31, 2010 plus applicable margin.
(4) Treats the financing of software license purchases and direct financing of system implementation as capital leases.
(5) Purchase obligations represent computing, tooling costs, and property, plant and equipment commitments at
December 31, 2010.
65
Off-Balance Sheet Arrangements
Other than operating leases disclosed in the notes to our financial statements included in this Annual Report,
we have not entered into any off-balance sheet arrangements as of December 31, 2010.
Tax
We establish reserves in accordance with FASB authoritative guidance to provide for additional income taxes
that may be due in future years as these previously filed tax returns are audited. We recognize the financial statement
impact for tax positions only after determining that based on its technical merits the relevant tax authority would
more likely than not sustain the position on audit. For tax positions meeting the “more likely than not threshold” the
amount recognized in the financial statements is the largest amount that has a greater than 50% likelihood of being
realized upon ultimate settlement with the relevant tax authority. The reserves are adjusted quarterly to reflect
changes in facts and circumstances, such as the tax audit’s progress, case law developments, and new or emerging
legislation. We believe that with a $14.7 million long-term payable, the tax reserves are adequate and reflect the
most probable outcome for all tax contingencies known at December 31, 2010. Accordingly, the tax contingency
liability is included as a non-current liability in our consolidated balance sheet.
Expected Backlog
As of December 31, 2010, our expected backlog associated with large commercial aircraft, regional jet,
business jet and military equipment deliveries through 2016, calculated based on contractual product prices and
expected delivery volumes, was approximately $28.3 billion. This is an increase of $0.3 billion over our
corresponding estimate as of the end of 2009 reflecting the fact that orders exceeded deliveries in 2010. Backlog
is calculated based on the number of units Spirit is under contract to produce on our fixed quantity contracts, and
Boeing or Airbus announced backlog on our supply agreements. The number of units may be subject to cancellation
or delay by the customer prior to shipment, depending on contract terms. The level of unfilled orders at any given
date during the year may be materially affected by the timing of our receipt of firm orders and additional airplane
orders, and the speed with which those orders are filled. Accordingly, our expected backlog as of December 31,
2010, may not necessarily represent the actual amount of deliveries or sales for any future period.
Foreign Operations
We engage in business in various non-U.S. markets. As of December 31, 2010, we have a foreign subsidiary with
one facility in the United Kingdom, which serves as a production facility, an assembly facility in Malaysia, a
worldwide supplier base, and a repair center for the European and Middle-Eastern regions. We purchase certain
components and materials that we use in our products from foreign suppliers and a portion of our products will be sold
directly to foreign customers, including Airbus, or resold to foreign end-users (i.e., foreign airlines and militaries). In
addition, Spirit has built a new assembly facility in Saint-Nazaire, France to receive and assemble center fuselage
frame sections for the Airbus A350 XWB commercial aircraft from the facility in Kinston, North Carolina before they
are shipped to Airbus. The new facility is expected to begin operations in 2011.
Spirit is party to a joint-venture operation with Russian-based Progresstech LTD. The company, known as
Spirit-Progresstech LLC, which operates primarily from a branch office located in Moscow, Russia, provides
aerospace engineering support services.
Spirit has entered into a joint venture with Hong Kong Aircraft Engineering Company Limited (HAECO), and
its subsidiary, Taikoo Aircraft Engineering Company Limited (TAECO), Cathay Pacific Airways Limited, and CalAsia to develop and implement a state-of-the-art composite and metal bond component repair station in the AsiaPacific region. The service center is called Taikoo Spirit AeroSystems Composite Co. Ltd.
Currency fluctuations, tariffs and similar import limitations, price controls and labor regulations can affect our
foreign operations. Other potential limitations on our foreign operations include expropriation, nationalization,
restrictions on foreign investments or their transfers and additional political and economic risks. In addition, the
transfer of funds from foreign operations could be impaired by any restrictive regulations that foreign governments
could enact.
66
Sales to foreign customers are subject to numerous additional risks, including the impact of foreign
government regulations, political uncertainties and differences in business practices. There can be no assurance
that foreign governments will not adopt regulations or take other actions that would have a direct or indirect adverse
impact on our business or market opportunities with such governments’ countries. Furthermore, the political,
cultural and economic climate outside the United States may be unfavorable to our operations and growth strategy.
For the twelve months ended December 31, 2010, our net revenues from direct sales to non-U.S. customers
were approximately $498.4 million, or 12%, of total net revenues for the same period. For the twelve months ended
December 31, 2009, our net revenues from direct sales to non-U.S. customers were approximately $575.9 million,
or 14%, of total net revenues for the same period. For the twelve months ended December 31, 2008, our net revenues
from direct sales to non-U.S. customers were approximately $465.4 million, or 12%, of total net revenues for the
same period.
Inflation
A majority of our sales are conducted pursuant to long-term contracts that set fixed unit prices, some of which
provide for price adjustment for inflation. In addition, we typically consider expected inflation in determining
proposed pricing when we bid on new work. Although we have attempted to minimize the effect of inflation on our
business through these protections, sustained or higher than anticipated increases in costs of labor or materials could
have a material adverse effect on our results of operations.
Spirit’s contracts with suppliers currently provide for fixed pricing in U.S. dollars. Spirit Europe’s supply
contracts are denominated in U.S. dollars, British pounds sterling and Euros. In some cases, our supplier
arrangements contain inflationary adjustment provisions based on accepted industry indices, and we typically
include an inflation component in estimating our supply costs. Although the raw material industry is experiencing a
softening in demand, some specific materials have yet to reflect a corresponding reduction in price. We expect that
raw material market pricing volatility will remain a factor that may impact our costs, despite protections in our
existing supplier arrangements. We will continue to focus our strategic cost reduction plans on mitigating the effects
of this potential cost increase on our operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a result of our operating and financing activities, we are exposed to various market risks that may affect our
consolidated results of operations and financial position. These market risks include fluctuations in interest rates,
which impact the amount of interest we must pay on our variable rate debt.
Other than the interest rate swaps described below, financial instruments that potentially subject us to
significant concentrations of credit risk consist principally of cash investments, the funds in which our pension
assets are invested, and trade accounts receivable.
Accounts receivable include amounts billed and currently due from customers, amounts earned but unbilled,
particular estimated contract changes, claims in negotiation that are probable of recovery, and amounts retained by
the customer pending contract completion. For the twelve months ended December 31, 2010, approximately 83% of
our net revenues were from sales to Boeing. We continuously monitor collections and payments from customers and
maintain a provision for estimated credit losses as deemed appropriate based upon historical experience and any
specific customer collection issues that have been identified. While such credit losses have historically not been
material, we cannot guarantee that we will continue to experience the same credit loss rates in the future.
We maintain cash and cash equivalents with various financial institutions and perform periodic evaluations of
the relative credit standing of those financial institutions and from time to time we invest excess cash in liquid shortterm money market funds. We have not experienced any losses in such accounts and believe that we are not exposed
to any significant credit risk on cash and cash equivalents. Additionally, we monitor our defined benefit pension
plan asset investments on a quarterly basis and we believe that we are not exposed to any significant credit risk in
these investments.
Commodity Price Risks
Some raw materials and operating supplies are subject to price and supply fluctuations caused by market
dynamics. Our strategic sourcing initiatives are focused on mitigating the impact of commodity price risk. We are
67
party to collective raw material sourcing contracts arranged through Boeing and Airbus. These collective sourcing
contracts allow us to obtain raw materials at pre-negotiated rates and help insulate us from market volatility across
the industry for certain specialized metallic and composite raw materials used in the aerospace industry. Although
our supply agreements with Boeing and Airbus allow us to pass on certain unusual increases in component and raw
material costs to Boeing and Airbus in limited situations, we may not be fully compensated for such increased costs.
We also have long-term supply agreements with a number of our major parts suppliers. We, as well as our supply
base, are experiencing pricing increases for metallic raw materials (primarily aluminum and titanium) despite
softening market demand across the industry. Although the demand pressure has been somewhat eased for certain
metallic and composite raw materials, the specialized nature of the materials used in the aerospace industry has
prevented a corresponding decrease in prices. We generally do not employ forward contracts or other financial
instruments to hedge commodity price risk, although we continue to review a full range of business options focused
on strategic risk management for all raw material commodities.
Any failure by our suppliers to provide acceptable raw materials, components, kits or subassemblies could
adversely affect our production schedules and contract profitability. We assess qualification of suppliers and
continually monitor them to control risk associated with such supply base reliance.
To a lesser extent, we also are exposed to fluctuations in the prices of certain utilities and services, such as
electricity, natural gas, chemicals and freight. We utilize a range of long-term agreements to minimize procurement
expense and supply risk in these areas.
Interest Rate Risks
After the effect of interest rate swaps, as of December 31, 2010, we had $400.0 million of total fixed rate debt
and $166.1 million of variable rate debt outstanding as compared to $500.0 million of total fixed rate debt and
$72.0 million of variable rate debt outstanding as of December 31, 2009. Borrowings under our Senior Secured
Credit Facility bear interest that varies with LIBOR. Interest rate changes generally do not affect the market value of
such debt, but do impact the amount of our interest payments and, therefore, our future earnings and cash flows,
assuming other factors are held constant. Assuming other variables remain constant, including levels of indebtedness, a one percentage point increase in interest rates on our variable debt would have an estimated impact on pretax earnings and cash flows for the next twelve months of approximately $1.7 million.
We enter into floating-to-fixed interest rate swap agreements periodically. As of December 31, 2010, the
interest swap agreements had notional amounts totaling $400.0 million.
Notional Amount
Expires
Variable
Rate
$100
$300
July 2011
July 2011
LIBOR
LIBOR
Fixed
Rate(1)
($ in millions)
4.27%
3.23%
Effective
Fixed
Rate(2)
Fair Value,
December 31,
2010
7.18%
4.98%
$(2.9)
$(6.4)
Total
$(9.3)
(1) The fixed rate represents the rate at which interest is paid by the Company pursuant to the terms of its interest
rate swap agreements.
(2) The effective Term B fixed interest rate represents the fixed rate of the derivative instrument plus the 175 basis
point margin on the pro rata share of Term B-1 and 325 basis points margin on the pro rata share of Term B-2
above the variable LIBOR borrowing rate we pay on the Term B loan.
The purpose of entering into these swaps was to reduce our exposure to variable interest rates. In accordance with
FASB authoritative guidance the interest rate swaps are being accounted for as cash flow hedges and the fair value of
the swap agreements is reported on the balance sheet as an asset, if positive, or a liability, if negative. The fair value of
the interest rate swaps was a net liability of approximately $(9.3) million at December 31, 2010. The Company also
considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. The Company
has applied these valuation techniques at year end and believes it has obtained the most accurate information available
for the types of derivative contracts it holds. The Company attempts to manage exposure to counterparty credit risk by
68
only entering into agreements with major financial institutions which are expected to be able to fully perform under
the terms of the agreement. We do not use these contracts for speculative or trading purposes.
Foreign Exchange Risks
During 2010, the Company entered into foreign currency transactions with notional amounts of $(19.1) million
for 2011 through 2013 to hedge revenue streams and known payments. The notional amounts of the contracts
remaining at December 31, 2010 was $(53.0) million.
As a result of the BAE Acquisition, we have sales, expenses, assets and liabilities that are denominated in
British pounds sterling. Spirit Europe’s functional currency is the British pound sterling. However, sales of Spirit
Europe’s products to Boeing and some procurement costs are denominated in U.S. dollars and Euros. As a
consequence, movements in exchange rates could cause net sales and our expenses to fluctuate, affecting our
profitability and cash flows. We use foreign currency forward contracts to reduce our exposure to currency
exchange rate fluctuations. The objective of these contracts is to minimize the impact of currency exchange rate
movements on our operating results. We do not use these contracts for speculative or trading purposes.
In addition, even when revenues and expenses are matched, we must translate British pound sterling
denominated results of operations, assets and liabilities for our foreign subsidiaries to U.S. dollars in our
consolidated financial statements. Consequently, increases and decreases in the value of the U.S. dollar as
compared to the British pound sterling will affect our reported results of operations and the value of our assets
and liabilities on our consolidated balance sheet, even if our results of operations or the value of those assets and
liabilities has not changed in its original currency. These transactions could significantly affect the comparability of
our results between financial periods and/or result in significant changes to the carrying value of our assets,
liabilities and shareholders’ equity.
In accordance with FASB authoritative guidance, the foreign exchange contracts for 2010 are being accounted
for as cash flow hedges. The fair value of the foreign exchange contracts was a net liability of approximately
$(1.6) million with a notional amount of $(53.0) million at December 31, 2010. At December 31, 2010, a 10%
unfavorable exchange rate movement in our portfolio of foreign currency contracts would have increased our
unrealized losses by $5.3 million.
Year
2011
2012
2013
December 31, 2010
Foreign
USD
Currency
Buy/(Sell)(1)
Buy/(Sell)(1)
$(44.1)
(8.9)
—
£27.3
5.7
(0.1)
$(53.0)
£32.9
Average
Average
Contract
Reevaluation
Rate
Rate
($ in millions)
1.6100
1.6000
1.5600
1.5500
Net Liability
Fair Value
Risk From
Change in
Reevaluation Rate
$(1.3)
(0.2)
(0.1)
$2.2
0.9
—
$(1.6)
$3.1
(1) Includes foreign currency hedge contracts for 2011 through 2013 novated to Spirit Europe as a result of the BAE
Acquisition (buy $0.3/sell £0.4), which had no underlying contractual transactions at the inception date of the
contracts and, therefore, are classified as debt securities which are not subject to hedge accounting. The
mark-to-market values of these debt securities are recorded through the Consolidated Statement of Operations
on a monthly basis in accordance with FASB authoritative guidance on investments — debt and equity
securities disclosures.
In accordance with FASB authoritative guidance, the intercompany revolving credit facility with Spirit Europe
is exposed to fluctuations in foreign exchange rates. The fluctuation in rates for 2010 resulted in a loss of
$2.5 million reflected in other income/expense.
Other than the interest rate swaps and foreign exchange contracts, we have no other derivative financial
instruments.
69
Item 8. Financial Statements and Supplementary Data
SPIRIT AEROSYSTEMS HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Financial Statements of Spirit AeroSystems Holdings, Inc. for the periods ended
December 31, 2010, December 31, 2009 and December 31, 2008
Report of Independent Registered Public Accounting Firm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70
71
72
73
74
75
76
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
In our opinion, the consolidated financial statements listed in the accompanying index, present fairly, in all
material respects, the financial position of Spirit AeroSystems Holdings, Inc. (the “Company”) at December 31,
2010 and December 31, 2009, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule appearing under Item 15 presents fairly, in
all material respects, the information set forth therein when read in conjunction with the related consolidated
financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2010, based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for these financial statements and financial statement
schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control
over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the Company’s internal control over financial reporting
based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
St. Louis, Missouri
February 22, 2011
71
Consolidated Statements of Operations
For the Twelve
For the Twelve
For the Twelve
Months Ended
Months Ended
Months Ended
December 31, 2010
December 31, 2009
December 31, 2008
($ in millions, except per share data)
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs and expenses
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . .
$4,172.4
$4,078.5
$3,771.8
3,607.9
156.0
51.5
3,581.4
137.1
56.7
3,163.2
154.5
48.4
Total operating costs and expenses . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense and financing fee amortization . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . .
3,815.4
357.0
(59.1)
0.3
(0.4)
3,775.2
303.3
(43.6)
7.0
6.1
3,366.1
405.7
(39.2)
18.6
(1.2)
Income before income taxes and equity in net
loss of affiliates . . . . . . . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . .
297.8
(78.2)
272.8
(80.9)
383.9
(118.5)
Income before equity in net loss of affiliates . . . . .
Equity in net loss of affiliates. . . . . . . . . . . . . . . . . .
219.6
(0.7)
191.9
(0.2)
265.4
—
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 218.9
$ 191.7
$ 265.4
$
$
$
$
$
$
1.56
1.55
See notes to consolidated financial statements
72
1.39
1.37
1.93
1.91
Consolidated Balance Sheets
December 31,
December 31,
2010
2009
($ in millions)
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset non-current, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Profit sharing/deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance payments, short-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, short-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred grant income liability — current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance payments, long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension/OPEB obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred grant income liability — non-current . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue and other deferred credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability — non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity
Preferred stock, par value $0.01, 10,000,000 shares authorized, no shares issued . .
Common stock, Class A par value $0.01, 200,000,000 shares authorized,
107,201,314 and 105,064,561 shares issued, respectively . . . . . . . . . . . . . . . . .
Common stock, Class B par value $0.01, 150,000,000 shares authorized,
34,897,388 and 35,669,740 shares issued, respectively . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73
$ 481.6
200.2
2,507.9
9.9
45.9
47.6
1.6
3,294.7
1,470.0
172.4
55.0
109.9
$5,102.0
$ 369.0
160.4
2,206.9
14.2
45.5
55.8
1.1
2,852.9
1,279.3
171.2
95.8
74.6
$4,473.8
$ 443.5
190.7
29.6
9.5
169.4
302.6
5.1
3.1
11.3
1,164.8
1,187.3
655.2
72.5
128.4
29.0
8.1
45.8
$ 441.3
161.9
3.6
9.1
237.4
107.1
—
3.5
18.3
982.2
884.7
727.5
62.6
129.3
46.0
15.6
52.1
—
—
1.1
1.0
0.3
983.6
(75.3)
900.7
1,810.4
0.5
1,810.9
$5,102.0
0.4
949.8
(59.7)
681.8
1,573.3
0.5
1,573.8
$4,473.8
Consolidated Statements of Changes in Shareholders’ Equity
Shares
Amount
Additional
Paid-in
Capital
139,519,492
$1.4
$924.6
Common Stock
Balance — December 31, 2007 . . . .
Net income . . . . . . . . . . . . . . . . . . . .
Employee equity awards . . . . . . . . . .
Stock forfeitures . . . . . . . . . . . . . . . .
SFAS 158, measurement date change,
net of tax . . . . . . . . . . . . . . . . . . .
Excess tax liability from share-based
payment arrangements . . . . . . . . . .
Unrealized loss on cash flow hedges,
net of tax . . . . . . . . . . . . . . . . . . .
Unrealized loss on pension, SERP,
retiree medical, net of tax . . . . . . .
Unrealized loss on currency
translation adjustments, net of
tax . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . .
SERP shares issued . . . . . . . . . . . . . .
net of tax . . . . . . . . . . . . . . . . . . .
Realized loss on cash flow hedges,
net of tax . . . . . . . . . . . . . . . . . . .
Unrealized gain on pension, SERP,
Unrealized gain on currency
tax . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based
payment arrangements . . . . . . . . . .
SERP shares issued . . . . . . . . . . . . . .
net of tax . . . . . . . . . . . . . . . . . . .
Realized loss on cash flow hedges,
net of tax . . . . . . . . . . . . . . . . . . .
Unrealized loss on pension, SERP,
Unrealized loss on currency
tax . . . . . . . . . . . . . . . . . . . . . . . .
497,903
(128,189)
—
—
Accumulated
Other
Comprehensive
Income
Retained
Earnings/
Accumulated
Deficit
$ 117.7
$222.9
265.4
16.4
(0.7)
1.8
(0.6)
139,889,206
1.4
1,217,412
(382,817)
10,500
—
—
—
—
140,734,301
—
1.4
1,456,684
(152,517)
—
—
939.7
$1,266.6
265.4
16.4
(0.7)
1.8
(0.6)
(18.1)
(18.1)
(190.8)
(190.8)
(43.0)
(134.2)
(43.0)
1,297.0
191.7
13.4
(3.3)
—
490.1
191.7
13.4
(3.3)
—
—
949.8
(6.7)
(6.7)
12.0
12.0
55.8
55.8
13.4
(59.7)
—
681.8
218.9
30.0
(1.2)
5.0
60,234
Total
13.4
1,573.3
218.9
30.0
(1.2)
5.0
—
—
142,098,702
—
$1.4
—
$983.6
(4.3)
10.2
10.2
(15.5)
(15.5)
(6.0)
$ (75.3)
74
(4.3)
—
$900.7
(6.0)
$1,810.4
Consolidated Statements of Cash Flows
Operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by (used in)
operating activities
Depreciation expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing fees . . . . . . . . . . . . . . . . . . . . .
Accretion of long-term receivable . . . . . . . . . . . . . . . . . . . . . . . . .
Employee stock compensation expense . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit of share-based payment arrangements . . . . . . . . .
Loss from the ineffectiveness of hedge contracts . . . . . . . . . . . . . . .
(Gain) loss from foreign currency transactions . . . . . . . . . . . . . . . .
Loss on disposition of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and other post retirement benefits, net . . . . . . . . . . . . . . . .
Grant income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in net loss of affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . .
Profit sharing/deferred compensation . . . . . . . . . . . . . . . . . . . . . . .
Advance payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable/payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue and other deferred credits . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) operating activities . . . . . . . . . . .
Investing Activities
Purchase of property, plant and equipment. . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . .
Long-term receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) investing activities . . . . . . . . . . . . .
Financing Activities
Proceeds from revolving credit facility . . . . . . . . . . . . . . . .
Payments on revolving credit facility . . . . . . . . . . . . . . . . .
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of bonds . . . . . . . . . . . . . . . . . . . .
Proceeds from government grants . . . . . . . . . . . . . . . . . . . .
Principal payments of debt . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit of share-based payment arrangements . . . .
Debt issuance and financing costs . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents for the period.
Cash and cash equivalents, beginning of period . . . . . . . . . .
Cash and cash equivalents, end of period . . . . . . . . . . . . . .
Supplemental information
Interest paid. . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . .
Non-cash investing and financing activities
Purchase of property, plant and equipment. . .
Property acquired through capital leases . . . .
Property acquired through government grants
For the Twelve
Months Ended
December 31,
2010
For the Twelve
Months Ended
December 31,
2009
($ in millions)
For the Twelve
Months Ended
December 31,
2008
$ 218.9
$ 191.7
$ 265.4
115.3
4.7
8.0
—
28.8
(5.0)
—
4.8
0.7
48.5
(9.7)
(8.9)
(3.1)
0.7
123.0
4.3
6.7
(6.5)
10.1
—
—
(4.5)
0.1
28.7
—
2.2
(1.9)
0.2
122.4
4.7
4.7
(16.2)
15.7
—
0.4
6.8
0.3
(2.8)
—
(28.0)
—
—
(41.6)
(300.3)
0.8
26.1
(140.3)
4.3
181.8
(9.4)
125.1
(8.2)
(320.7)
140.4
(14.7)
(97.5)
(43.7)
(14.8)
(8.8)
(13.9)
15.3
(570.0)
(37.6)
(1.0)
341.4
7.0
93.7
(11.5)
210.7
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(288.1)
0.5
—
(0.8)
(288.4)
(228.2)
0.2
115.4
0.2
(112.4)
(235.8)
1.9
116.1
(2.0)
(119.8)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
150.0
(150.0)
—
300.0
—
(9.6)
5.0
(18.0)
277.4
(1.5)
112.6
369.0
$ 481.6
300.0
(300.0)
6.9
293.4
0.7
(7.6)
—
(17.3)
276.1
2.7
152.5
216.5
$ 369.0
175.0
(175.0)
10.3
—
15.9
(15.9)
—
(6.8)
3.5
(11.3)
83.1
133.4
$ 216.5
..................
..................
$ 60.7
$ 34.9
$ 35.6
$ 95.7
$ 35.5
$ 115.4
..................
..................
..................
$ 8.5
$ 10.7
$ 8.9
$
$ 10.3
$ 89.2
$
$
$ 37.0
75
Notes to the Consolidated Financial Statements
($, E, £, and RM in millions other than per share amounts)
1.
Nature of Business
Spirit AeroSystems Holdings, Inc. (“Holdings” or the “Company”) was incorporated in the state of Delaware
on February 7, 2005, and commenced operations on June 17, 2005 through the acquisition of The Boeing
Company’s (“Boeing”) operations in Wichita, Kansas, Tulsa, Oklahoma and McAlester, Oklahoma (the “Boeing
Acquisition”). Holdings provides manufacturing and design expertise in a wide range of products and services for
aircraft original equipment manufacturers and operators through its subsidiary, Spirit AeroSystems, Inc. (“Spirit”).
Onex Corporation (“Onex”) of Toronto, Canada maintains majority voting power of Holdings. In April 2006,
Holdings acquired the aerostructures division of BAE Systems (Operations) Limited (“BAE Aerostructures”),
which builds structural components for Airbus, a division of the European Aeronautic Defense and Space NV
(“Airbus”) and Boeing. Prior to this acquisition, Holdings sold essentially all of its production to Boeing. Since
Spirit’s incorporation, the Company has expanded its customer base to include Sikorsky, Rolls-Royce, Gulfstream,
Bombardier, Mitsubishi Aircraft Corporation, Southwest Airlines, and Continental Airlines. The Company has its
headquarters in Wichita, Kansas, with manufacturing facilities in Tulsa and McAlester, Oklahoma; Prestwick,
Scotland; Wichita, Kansas; and Subang, Malaysia. In July 2010, the Company opened its new 500,000 square-foot
manufacturing facility in Kinston, North Carolina, which is designed to initially produce components for the Airbus
A350 XWB (Xtra Wide-Body) aircraft. The Company also recently constructed an assembly plant for the A350
XWB aircraft in Saint-Nazaire, France, which is expected to begin operations during 2011.
The Company is the majority participant in the Kansas Industrial Energy Supply Company (“KIESC”), a
tenancy-in-common with other Wichita companies established to purchase natural gas.
The Company participates in two joint ventures, Spirit-Progresstech LLC (“Spirit-Progresstech”) and Taikoo
Spirit AeroSystems Composite Co. Ltd. (“TSACCL”), of which Spirit’s ownership interest is 50.0% and 31.5%,
respectively. Spirit-Progresstech provides aerospace engineering support services and TSACCL was formed to
develop and implement a state-of-the-art composite and metal bond component repair station in the Asia-Pacific
region.
The accompanying consolidated financial statements include the Company’s financial statements and the
financial statements of its majority owned subsidiaries and have been prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) and the instructions to Form 10-K. All
intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been
made to the prior year financial statements and notes to conform to the 2010 presentation.
2.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the Company’s financial statements and the
financial statements of its majority-owned subsidiaries and have been prepared in accordance with GAAP.
Investments in business entities in which the Company does not have control, but has the ability to exercise
influence over operating and financial policies, including Spirit-Progresstech and TSACCL, are accounted for by
the equity method. KIESC is fully consolidated as the Company owns 77.8% of the entity’s equity. All
intercompany balances and transactions have been eliminated in consolidation. The Company’s U.K. subsidiary
uses local currency, the British pound, as its functional currency. All other foreign subsidiaries use local currency as
their functional currency with the exception of our Malaysian subsidiary, which uses the British pound, and our
French subsidiary, which uses the U.S. dollar.
As part of the monthly consolidation process, the functional currencies of the Company’s international
subsidiaries are translated to U.S. dollars using the end-of-month translation rate for balance sheet accounts and
average period currency translation rates for revenue and income accounts.
76
Notes to the Consolidated Financial Statements — (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ from those estimates and assumptions.
The results of operations during fiscal 2010 include the unfavorable impact of cumulative catch-up adjustments
relating to prior period revenues of $23.2 resulting from a charge on the Hawker 850 XP contract related to the
decision to exit the program, additional cost requirements to meet hardware test schedules on the Sikorsky CH-53K
program, and unfavorable cost trends on the B787 program, partially offset by favorable cost performance trends on
mature programs.
The results of operations during fiscal 2009 include the unfavorable impact of cumulative catch-up adjustments relating to prior period revenues of $58.5 resulting from post-strike production ramp up as a result of the IAM
Strike at Boeing, nutplate rework, transition to a new enterprise resource planning (ERP) system, higher than
forecasted costs on contract blocks completed in December 2009 and higher than expected costs on the Sikorsky
CH-53K program.
The results of operations during fiscal 2008 include an unfavorable impact of cumulative catch-up adjustments
relating to prior period revenues of $22.6 driven primarily by lower forecasted pension income and the impact of the
IAM Strike at Boeing.
Revenue Recognition
A significant portion of the Company’s revenues are recognized under long-term, volume-based pricing
contracts, requiring delivery of products over several years. The Company recognizes revenue under the contract
method of accounting and records sales and profits on each contract in accordance with the percentage-of-completion method of accounting, primarily using the units of delivery method. Revenues from non-recurring design
work are recognized based on substantive milestones or use of the cost to cost method, that are indicative of our
progress toward completion depending on facts and circumstances. We follow the requirements of FASB authoritative guidance on accounting for the performance of construction-type and certain production-type contracts (the
contract method of accounting), using the cumulative catch-up method in accounting for revisions in estimates.
Under the cumulative catch-up method, the impact of revisions in estimates are recognized immediately when
changes in estimated contract profitability become known.
A profit rate is estimated based on the difference between total revenues and total costs of a contract. Total
revenues at any given time include actual historical revenues up to that time plus future estimated revenues. Total
costs at any given time include actual historical costs up to that time plus future estimated costs. Estimated revenues
include negotiated or expected values for units delivered, estimates of probable recoveries asserted against the
customer for changes in specifications, price adjustments for contract and volume changes, and escalation. Costs
include the estimated cost of certain pre-production effort (including non-recurring engineering and planning
subsequent to completion of final design) plus the estimated cost of manufacturing a specified number of production
units. Estimates take into account assumptions relative to future labor performance and rates, and projections
relative to material and overhead costs including expected “learning curve” cost reductions over the term of the
contract. The specified number of production units used to establish the profit margin (“contract block”) is
predicated upon contractual terms and market forecasts. The assumed timeframe/period covered by the contract
block is generally equal to the period specified in the contract or the future timeframe for which we can project
reasonably dependable cost estimates. If the contract is a “life of program” contract, then the life of the contract
block is usually the latter of these timeframes. Estimated revenues and costs also take into account the expected
impact of specific contingencies that we believe are probable.
77
Estimates of revenues and costs for our contracts span a period of multiple years and are based on a substantial
number of underlying assumptions. We believe that the underlying assumptions are sufficiently reliable to provide a
reasonable estimate of the profit to be generated. However, due to the significant length of time over which revenue
streams will be generated, the variability of the revenue and cost streams can be significant if the assumptions change.
For revenues not recognized under the contract method of accounting, the Company recognizes revenues from
the sale of products at the point of passage of title, which is generally at the time of shipment. Shipping and handling
costs are included in cost of sales. Revenues earned from providing maintenance services including any contracted
research and development are recognized when the service is complete or other contractual milestones are attained.
Revenues from non-recurring design work are recognized based on substantive milestones that are indicative of our
progress toward completion. Non-recurring revenues, which are derived primarily from engineering and design
efforts, were $297.0 and $328.0 for each of the twelve month periods ending December 31, 2010 and December 31,
2009, respectively.
Since Boeing retained title to tooling assets and provides such tooling to the Company at no cost, the Company
treats the amortization of Boeing-owned tooling as a reduction to revenues as required by FASB authoritative
guidance related to accounting for consideration given by a vendor to a customer. The Company recognized $1.9,
$8.4, and $13.7, as a reduction to net revenues for the periods ended December 31, 2010, December 31, 2009, and
December 31, 2008, respectively. Boeing-owned tooling became fully amortized in 2010. However, under an
agreement with Airbus, certain payments that are also accounted for as consideration given by a vendor to a
customer will be amortized as a reduction to revenues beginning in 2011.
New Programs
A significant portion of the Company’s future revenues is expected to be derived from new programs, most
notably the B787, on which we may be contracted to provide design and engineering services, recurring production,
or both. There are several risks inherent to such new programs. In the design and engineering phase, we may incur
costs in excess of our forecasts due to several factors, including cost overruns, customer directed change orders and
delays in the overall program. We may also incur higher than expected recurring production costs, which may be
caused by a variety of factors, including the future impact of engineering changes (or other change orders) or our
inability to secure contracts with our suppliers at projected cost levels. Our ability to recover these excess costs from
the customer will depend on several factors, including our rights under our contracts for the new programs. In
determining our profits and losses in accordance with the percentage-of-completion method of contract accounting,
we are required to make significant assumptions regarding our future costs, as well as the estimated number of units
to be manufactured under the contract and other variables. We continually review and update our assumptions based
on market trends and our most recent experience. If we make material changes to our assumptions, such as a
reduction in the estimated number of units to be produced under the contract (which could be caused by emerging
market trends or other factors), an increase in future production costs or a change in the recoverability of increased
design or production costs, we may experience negative cumulative catch-up adjustments related to revenues
previously recognized. In some cases, we may recognize forward loss amounts.
Research and Development
Research and development includes costs incurred for experimentation, design and testing and are expensed as
incurred as required under FASB authoritative guidance pertaining to accounting for research and development
costs.
Joint Venture
The investment resulting in a 50.0% ownership interest in Spirit-Progresstech LLC totaled $1.3 at December 31, 2010 and is accounted for under the equity method of accounting.
78
The investment resulting in a 31.5% ownership interest in Taikoo Spirit AeroSystems Composite Co. Ltd.
totaled $3.0 at December 31, 2010 and is accounted for under the equity method of accounting.
Cash and Cash Equivalents
Cash and cash equivalents represent all highly liquid investments with original maturities of three months or
less.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company determines an
allowance for doubtful accounts based on a review of outstanding receivables. Account balances are charged off
against the allowance after the potential for recovery is considered remote. The Company’s allowance for doubtful
accounts was approximately zero and $0.1 at December 31, 2010 and December 31, 2009, respectively.
Inventory
Raw materials are stated at lower of cost (principally on an actual or average cost basis) or market. Inventoried
costs attributed to units delivered under long-term contracts are based on the estimated average cost of all units
expected to be produced and are determined under the learning curve concept which anticipates a predictable
decrease in unit costs as tasks and production techniques become more efficient through repetition. This usually
results in an increase in inventory (referred to as “excess-over-average” or “deferred production costs”) during the
early years of a contract. These costs are deferred only to the extent the amount of actual or expected
excess-over-average is reasonably expected to be fully offset by lower-than-average costs in future periods of a
contract. If in-process inventory plus estimated costs to complete a specific contract exceed the actual plus
anticipated remaining sales value of such contract, such excess is charged to cost of sales in the period the loss
becomes known, thus reducing inventory to estimated realizable value. Costs in inventory include amounts relating
to contracts with long production cycles, some of which are not expected to be realized within one year.
The Company reviews its general stock materials and spare parts inventory each quarter to identify impaired
inventory, including excess or obsolete inventory, based on historical sales trends and expected production usage.
Impaired inventories are written off to work in process in the period identified.
Finished goods inventory is stated at its estimated average per unit cost based on all units expected to be
produced.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is applied using a
straight-line method over the useful lives of the respective assets as described in the following table:
Estimated Useful Life
Land improvements . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . .
Tooling — Airplane program — B787, Rolls-Royce . .
Tooling — Airplane program — all others . . . . . . . . .
Capitalized software . . . . . . . . . . . . . . . . . . . . . . . . .
....................
....................
....................
....................
....................
....................
20
45
3-20
5-20
2-10
3-7
years
years
years
years
years
years
We capitalize certain costs, such as software coding, installation and testing, that are incurred to purchase or to
create and implement internal-use computer software in accordance with FASB authoritative guidance pertaining to
79
capitalization of cost for internal-use software. Our capitalization policy includes specifications that the software
must have a service life greater than one year, is legally and substantially owned by Spirit, and has an acquisition
cost of greater than $0.1.
In January 2010, we adopted a change in accounting estimate which extended the lives of certain assets. The
effect of this change was $14.6 decrease in depreciation capitalized to inventory for the twelve month period ended
December 31, 2010, which will eventually flow through cost of sales following the process for contract accounting.
Intangible Assets and Goodwill
Intangible assets are recorded at estimated fair value and are comprised of patents, favorable leasehold
interests, and customer relationships that are amortized on a straight-line basis over their estimated useful lives,
ranging from 6 to 16 years for patents, 14 to 24 years for favorable leasehold interests, and 8 years for customer
relationships.
Goodwill resulting from the acquisition of BAE Aerostructures is not amortized.
Impairment or Disposal of Long-Lived Assets and Goodwill
Spirit reviews capital and amortizing intangible assets (long-lived assets) for impairment on an annual basis or
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in
accordance with FASB authoritative guidance on accounting for the impairment or disposal of long-lived assets.
Under the standard, assets must be classified as either held-for-use or available-for-sale. An impairment loss is
recognized when the carrying amount of an asset that is held for use exceeds the projected undiscounted future net
cash flows expected from its use and disposal, and is measured as the amount by which the carrying amount of the
asset exceeds its fair value, which is measured by discounted cash flows when quoted market prices are not
available. For assets available-for-sale, an impairment loss is recognized when the carrying amount exceeds the fair
value less cost to sell. The Company performs an annual impairment test for goodwill in the fourth quarter of each
year, in accordance with FASB authoritative guidance pertaining to goodwill and other intangible assets, or more
frequently, if an event occurs or circumstances change that would more likely than not reduce fair value below
current value.
Deferred Financing Costs
Costs relating to long-term debt are deferred and included in other long-term assets. These costs are amortized
over the term of the related debt or debt facilities, and are included as a component of interest expense.
Derivative Instruments and Hedging Activity
We use derivative financial instruments to manage the economic impact of fluctuations in currency exchange
rates and interest rates. To account for our derivative financial instruments, we follow the FASB guidance on
accounting for derivatives and hedges. Derivative financial instruments are recognized on the Consolidated Balance
Sheets as either assets or liabilities and are measured at fair value. Changes in fair value of derivatives are recorded
each period in earnings or accumulated other comprehensive income, depending on whether a derivative is effective
as part of a hedge transaction, and if it is, the type of hedge transaction. Gains and losses on derivative instruments
reported in accumulated other comprehensive income are subsequently included in earnings in the periods in which
earnings are affected by the hedged item or when the hedge is no longer effective. We present the cash flows
associated with our derivatives as a component of the investing section of the Statement of Cash Flows. Our use of
derivatives has generally been limited to interest rate swaps. The Company also enters into foreign currency forward
contracts to reduce the risks associated with the changes in foreign exchange rates on sales and cost of sales
denominated in currencies other than the entities’ functional currency.
80
Fair Value of Financial Instruments
Financial instruments are measured in accordance with FASB authoritative guidance related to fair value
measurements. This guidance clarifies the definition of fair value, prescribes methods for measuring fair value,
establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about fair
value measurements. See Note 10, Fair Value Measurements. The three-tier fair value hierarchy, which prioritizes
the inputs used in the valuation methodologies, is:
Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as
quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and
liabilities in markets that are not active, or other inputs that are observable or can be corroborated by
observable market data.
Level 3 — Valuations based on unobservable inputs reflecting our own assumptions, consistent with
reasonably available assumptions made by other market participants. These valuations require significant
judgment.
The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts
receivable and accounts payable, approximate fair value because of their short maturities.
Income Taxes
Income taxes are accounted for in accordance with FASB authoritative guidance on accounting for income
taxes. Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable
to differences between the financial statement carrying amounts for existing assets and liabilities and their
respective tax bases. A valuation allowance is recorded to reduce deferred income tax assets to an amount that in
management’s opinion will ultimately be realized. Tax rate changes impacting these assets and liabilities are
recognized in the period during which the rate change occurs.
We record an income tax expense or benefit based on the net income earned or net loss incurred in each tax
jurisdiction and the tax rate applicable to that income or loss. In the ordinary course of business, there are
transactions for which the ultimate tax outcome is uncertain. These uncertainties are accounted for in accordance
with FASB authoritative guidance on accounting for the uncertainty in income taxes. The final tax outcome for
these matters may be different than management’s original estimates made in determining the income tax provision.
A change to these estimates could impact the effective tax rate and net income or loss in subsequent periods. We use
the flow-through accounting method for tax credits. Under this method, tax credits reduce income tax expense.
Stock-Based Compensation and Other Share-Based Payments
Many of the Company’s employees are participants in various stock compensation plans. The Company
accounts for stock option plans, restricted share plans and other stock-based payments in accordance with FASB
authoritative guidance pertaining to share-based payment. The expense attributable to the Company’s employees is
recognized over the period the amounts are earned and vested, as described in Note 14.
Service and Product Warranties and Extraordinary Rework
Provisions for estimated expenses related to service and product warranties and certain extraordinary rework
are made at the time products are sold. These estimates are established using historical information on the nature,
frequency and average cost of warranty claims.
81
The following is a roll forward for the warranty and extraordinary rework provision as of December 31, 2010
and December 31, 2009:
2010
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . .
Charges to costs and expenses . . . . . . . . . . . . . . .
Write-offs, net of recoveries . . . . . . . . . . . . . . . . .
Exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . $13.1
.........................
7.0
.........................
(1.3)
.........................
(0.1)
Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18.7
2009
$ 6.5
7.0
(0.7)
0.3
$13.1
Fiscal Year End
The Company’s fiscal years ended on December 31, 2010, December 31, 2009, and December 31, 2008. Both
the Company’s and Spirit’s fiscal quarters end on the Thursday closest to the calendar quarter end.
New Accounting Standards
In February 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
No. 2010-09, Subsequent Events (Topic 855) — Amendments to Certain Recognition and Disclosure Requirements,
which stated, among other things, that filers with the SEC are not required to disclose the date through which an
entity has evaluated subsequent events. The guidance was effective upon issuance and did not have a material
impact on the Company’s consolidated financial statements.
In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820) — Improving Disclosures about Fair Value Instruments (“FASB ASU 2010-06”), which,
among other things, expands disclosures on recurring fair value measurements, including activity, transfers and
reconciliation of asset and liability classes, using Levels 1, 2 and 3 as defined. The guidance also clarifies existing
disclosures on levels of disaggregation between such classes and input and valuation techniques used to measure
recurring and non-recurring Level 2 or Level 3 fair value measurements. This guidance was effective for the
Company’s fiscal quarter ended April 1, 2010, except for the requirement related to purchases, sales, issuances, and
settlements in the roll forward activity of Level 3 fair value measurements. Those disclosures are effective for fiscal
years beginning after December 15, 2010, and for interim periods within those fiscal years. Adoption of FASB ASU
2010-06 did not have a material effect on the Company’s consolidated financial statements.
In January 2010, FASB issued Accounting Standards Update No. 2010-02, Consolidation (Topic 810) —
Accounting and Reporting for Decreases in Ownership of a Subsidiary — A Scope Clarification (“FASB ASU
2010-02”), which expands the disclosure requirements about deconsolidation of a subsidiary or derecognition of a
group of assets. The guidance in this update is effective for periods beginning in the first interim or annual reporting
period ended on or after December 15, 2009 and thus was effective for the Company’s fiscal quarter ended April 1,
2010. Adoption of FASB ASU 2010-02 did not have a material impact on the Company’s consolidated financial
statements.
In December 2009, FASB issued Accounting Standards Update No. 2009-17, Consolidation (Topic 810) —
Improvements to Financial Reporting by Enterprises with Variable Interest Entities (“FASB ASU 2009-17”) to
incorporate the changes made by FASB Statement No. 167 into the FASB Codification. The guidance in this update
is effective for periods beginning after November 15, 2009 and thus has been effective since the Company’s first
quarter reporting in 2010. Adoption of FASB ASU 2009-17 did not have a material impact on the Company’s
consolidated financial statements.
82
In the third quarter of 2009, the Company adopted the FASB Accounting Standards Codification (“ASC”). The
ASC is the single official source of authoritative, non-governmental GAAP, other than guidance issued by the SEC.
The adoption of the ASC did not have any impact on the financial statements included herein.
3.
Accounts Receivable
Accounts receivable, net consists of the following:
December 31,
2010
December 31,
2009
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$191.5
8.7
$151.7
8.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . .
200.2
—
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$200.2
160.5
(0.1)
$160.4
The Company recognized $11.3 and $3.4 as unbilled accounts receivable related to our trade accounts at
December 31, 2010 and December 31, 2009, respectively.
4.
Inventory
Inventories are summarized as follows:
December 31,
2010
December 31,
2009
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 234.0
1,748.5
40.9
$ 209.1
1,526.0
30.8
Product inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized pre-production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,023.4
484.5
1,765.9
441.0
Total inventory, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,507.9
$2,206.9
83
Inventories are summarized by platform as follows:
December 31,
2010
December 31,
2009
B737 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B747(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B767 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B777 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B787(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Airbus — All platforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gulfstream(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rolls-Royce(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cessna Citation Columbus(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other in-process inventory related to long-term contracts and other
programs(6)(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 261.1
167.7
19.6
115.9
1,115.1
134.4
492.0
73.1
—
36.4
$ 298.4
140.6
18.5
146.3
896.3
129.9
365.8
55.5
23.0
29.3
92.6
103.3
Total inventory, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,507.9
$2,206.9
(1) B747 inventory includes $24.6 and $11.3 in non-recurring production costs at December 31, 2010 and
December 31, 2009, respectively, related to the B747-8 program.
(2) B787 inventory includes $221.8 and $230.7 in capitalized pre-production costs at December 31, 2010 and
December 31, 2009, respectively.
(3) Gulfstream inventory includes $262.7 and $210.3 in capitalized pre-production costs at December 31, 2010 and
(4) Rolls-Royce inventory includes $57.3 and $52.1 in non-recurring production costs at December 31, 2010 and
(5) As of December 31, 2009, Cessna inventory included non-recurring costs incurred on the Cessna Citation
Columbus program that was terminated in July 2009, which were subject to our termination claim. This claim
was settled in the fourth quarter of 2010.
(6) Sikorsky inventory includes $27.3 and $17.7 in non-recurring production costs at December 31, 2010 and
(7) Includes non-program specific inventoriable cost accruals and miscellaneous other work-in-process.
Capitalized pre-production costs include certain contract costs, including applicable overhead, incurred before
a product is manufactured on a recurring basis. These costs are typically recovered over a certain number of ship set
deliveries and the Company believes these amounts will be fully recovered.
The following is a roll forward of the capitalized pre-production included in the inventory balances at
December 31, 2010 and December 31, 2009:
2010
2009
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $441.0
Charges to costs and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(14.2)
Capitalized costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57.7
$417.9
(95.6)
118.7
Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $484.5
$441.0
84
At December 31, 2010, work-in-process inventory included $760.0 of deferred production costs, which is
comprised of $639.3 related to the B787, $145.1 on certain other contracts for the excess of production costs over
the estimated average cost per ship set, and $(24.4) of credit balances for favorable variances on other contracts
between actual costs incurred and the estimated average cost per ship set for units delivered under the current
production blocks. These balances were $457.4, including $412.9 related to the B787 and $50.5 for certain other
contracts, and $(6.0) of credit balances for favorable variances on other contracts between actual costs incurred and
the estimated cost per ship set for units delivered under the current production blocks, respectively, at December 31,
2009. Recovery of excess over average deferred production costs is dependent on the number of ship sets ultimately
sold and the ultimate selling prices and lower production costs associated with future production under these
contract blocks. The Company believes these amounts will be fully recovered.
Sales significantly under estimates or costs significantly over estimates could result in the realization of losses
on these contracts in future periods.
The following is a roll forward of the deferred production included in the inventory balances at December 31,
2010 and December 31, 2009:
2010
Balance, January 1 . . . . . . . . . . . . . . . . . . . . .
Charges to costs and expenses . . . . . . . . . . . .
Capitalized costs(1) . . . . . . . . . . . . . . . . . . . .
Exchange rate . . . . . . . . . . . . . . . . . . . . . . . .
2009
. . . . . . . . . . . . . . . . . . . . . . . . . $ 457.4
.........................
(179.5)
.........................
483.3
.........................
(1.2)
$ 162.0
(189.6)
482.9
2.1
Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 760.0
$ 457.4
(1) Approximately $226.5 of deferred production is related to deliveries of sixteen B787 ship sets during 2010.
5.
Property, Plant and Equipment
Property, plant and equipment, net consists of the following:
December 31,
2010
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings (including improvements) . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . .
Tooling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized software . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . .
...........
...........
...........
...........
...........
...........
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . .
$
17.1
419.7
752.9
542.0
103.9
174.3
2,009.9
(539.9)
$1,470.0
December 31,
2009
$
17.7
258.1
503.6
488.5
121.2
316.3
1,705.4
(426.1)
$1,279.3
In January 2010, we adopted a change in accounting estimate which extended the useful lives of certain assets.
The effect of this change was a $14.6 decrease in depreciation capitalized to inventory for the twelve month period
ended December 31, 2010, which will eventually flow through cost of sales following the process for contract
accounting.
Interest costs associated with construction-in-progress are capitalized until the assets are completed and ready
for use. Capitalized interest was $10.2 and $7.1 for the twelve months ended December 31, 2010 and December 31,
85
2009, respectively. Repair and maintenance costs are expensed as incurred. The Company recognized $88.9 and
$91.6 of repair and maintenance expense for the twelve months ended December 31, 2010 and December 31, 2009,
respectively.
We capitalize certain costs, such as software coding, installation and testing, that are incurred to purchase or to
create and implement internal use computer software in accordance with FASB authoritative guidance pertaining to
capitalization of costs for internal-use software. Depreciation expense related to capitalized software was $16.4 and
$15.2 for the twelve months ended December 31, 2010 and December 31, 2009, respectively.
6.
Other Assets
Other assets are summarized as follows:
December 31,
2010
Intangible assets
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Favorable leasehold interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2.0
9.7
26.8
December 31,
2009
$ 2.0
9.7
28.1
Total intangible assets. . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated amortization-patents . . . . . . . . . . . . .
Accumulated amortization-favorable leasehold interest.
Accumulated amortization-customer relationships . . . .
...........
...........
...........
...........
38.5
(0.9)
(3.6)
(15.9)
39.8
(0.7)
(3.1)
(13.2)
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financing costs, net . . . . . . . . . . . . . . . . . . . . .
Fair value of derivative instruments . . . . . . . . . . . . . . . .
Goodwill — Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in net assets of affiliates . . . . . . . . . . . . . . . . . . .
Customer supply agreement(1) . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...........
...........
...........
...........
...........
...........
...........
18.1
35.0
1.2
2.9
4.3
39.6
8.8
22.8
25.0
1.2
3.0
3.9
6.7
12.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$109.9
$ 74.6
(1) Under an agreement with Airbus, certain payments accounted for as consideration given by a vendor to a
customer will be amortized as a reduction to net revenues beginning in 2011.
Deferred financing costs are recorded net of $29.4 and $21.4 of accumulated amortization at December 31,
2010 and December 31, 2009, respectively. In 2009, the Company incurred $10.2 of additional deferred financing
costs in connection with the amendment to its revolving credit facility and $7.2 of additional deferred financing
costs in connection with the issuance of its senior notes due 2017. In 2010, the Company incurred $6.3 of additional
deferred financing costs in connection with the issuance of its senior notes due 2020 and registration of its senior
notes due 2017.
The Company recognized $4.1, $4.1, and $4.7 of amortization expense of intangibles for the twelve months
ended December 31, 2010, December 31, 2009 and December 31, 2008, respectively.
86
Estimated amortization expense associated with the Company’s amortizable intangible assets for each of the
next five years is as follows:
2011 . . . . . .
2012 . . . . . .
2013 . . . . . .
2014 . . . . . .
2015 . . . . . .
..................................................
..................................................
..................................................
..................................................
..................................................
...........
...........
...........
...........
...........
$4.1
$4.1
$4.1
$1.6
$0.7
The changes in the carrying amount of goodwill for the years ended December 31, 2010 and December 31,
2009 are as follows:
2010
7.
2009
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.0
Goodwill acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Exchange rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.1)
$2.7
—
0.3
Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.9
$3.0
Advance Payments and Deferred Revenue/Credits
Advance payments. Advance payments are those payments made to Spirit by third parties in contemplation
of the future performance of services, receipt of goods, incurrence of expenditures, or for other assets to be provided
by Spirit on a contract and are repayable if such obligation is not satisfied. The amount of advance payments to be
recovered against units expected to be delivered within a year is classified as a short-term liability, with the balance
of the unliquidated advance payments classified as a long-term liability.
Deferred revenue/credits. Deferred revenue generally consists of nonrefundable amounts received in
advance of revenue being earned for specific contractual deliverables. These payments are classified as deferred
revenue when received and recognized as revenue as the production units are delivered. In the fourth quarter of 2010
as part of the memorandum of agreement with Boeing related to the B787 contract, the payment was recorded as
deferred revenue but is potentially refundable if we do not finalize a contract amendment by a certain date in the
second quarter of 2011.
Advance payments and deferred revenue/credits are summarized by platform as follows:
December 31,
2010
B737 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B747 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B787 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Airbus — All platforms . . . . . . . . . . . . . . . . . . . . . . . . .
Gulfstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...........
...........
...........
...........
...........
...........
Total advance payments and deferred revenue/credits . . . . . . . . . . . . .
87
32.5
0.7
1,023.3
54.9
37.5
7.3
December 31,
2009
$
$
59.8
3.0
924.3
66.8
42.5
21.6
$1,156.2
$1,118.0
8.
Government Grants
As part of our site construction projects in Kinston, North Carolina and Subang, Malaysia, we have the benefit
of grants related to government funding of a portion of these buildings and other specific capital assets. Due to the
terms of the lease agreements, we are deemed to own the construction projects. During the construction phase of the
facilities, as amounts eligible under the terms of the grants were expended, we recorded that spending as property,
plant and equipment (construction-in-progress) and deferred grant income liability (less the present value of any
future minimum lease payments). Upon completion of the facilities, the deferred grant income is being amortized as
a reduction to production cost. This amortization is based on specific terms associated with the different grants. In
North Carolina, the deferred grant income related to the capital investment criteria, which represents half of the
grant, is being amortized over the lives of the assets purchased to satisfy the capital investment performance criteria.
The other half of the deferred grant income is being amortized over a ten-year period in a manner consistent with the
job performance criteria. In Malaysia, the deferred grant income is being amortized based on the lives of the eligible
assets constructed with the grant funds as there are no performance criteria. As of December 31, 2010, we recorded
$138.5 within property, plant and equipment and deferred grant income liability related to the use of grant funds in
North Carolina and Malaysia. Of this amount, $134.4 in property, plant and equipment represents transactions
where funds have been paid directly to contractors by an agency of the Malaysian Government in the case of
Malaysia, and by the escrow agent in North Carolina, so they are not reflected on our Condensed Consolidated
Statements of Cash Flows.
Deferred grant income liability, net consists of the following:
Twelve Months Ended
December 31, 2010
Twelve Months Ended
December 31, 2009
Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grant liability recorded. . . . . . . . . . . . . . . . . . . . . . . . . .
Grant income recognized . . . . . . . . . . . . . . . . . . . . . . . .
Exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$129.3
8.9
(3.1)
(1.6)
$ 38.8
89.2
(1.9)
3.2
Total deferred grant income liability . . . . . . . . . . . . . . . .
$133.5
$129.3
The asset related to the deferred grant income, net consists of the following:
9.
Twelve Months Ended
December 31, 2010
Twelve Months Ended
December 31, 2009
Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount paid by Spirit (reimbursed by third parties) . . . .
Amount paid by agency/escrow agent . . . . . . . . . . . . . . .
Depreciation offset to amortization of grant. . . . . . . . . . .
Exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$129.3
—
8.9
(3.1)
(1.7)
$ 38.8
0.7
88.5
(1.9)
3.2
Total asset value related to deferred grant income . . . . . .
$133.4
$129.3
Derivative and Hedging Activities
The Company enters into interest rate swap agreements to reduce its exposure to the variable rate portion of its
long-term debt. The Company also enters into foreign currency hedge contracts to reduce the risks associated with
the changes in foreign exchange rates on sales and cost of sales denominated in currencies other than the entities’
functional currency. Any gains or losses on the hedges are included in earnings when the underlying transaction that
was hedged occurs. The Company does not use these contracts for speculative or trading purposes. On the inception
date, the Company designates a derivative contract as either a fair value or cash flow hedge in accordance with
88
FASB guidance on accounting for derivatives and hedges and links the contract to either a specific asset or liability
on the balance sheet, or to forecasted commitments or transactions. The Company formally documents the hedging
relationship between the hedging instrument and the hedged item as well as its risk-management objective and
strategy for undertaking the hedge, the nature of the risk being hedged, how the hedging instrument’s effectiveness
in offsetting the hedged risk will be assessed and a description of the method of measuring ineffectiveness. The
Company also formally assesses, both at the hedge’s inception and on a quarterly basis, whether the derivative item
is effective in offsetting changes in fair value or cash flows.
Changes in the fair value of derivative instruments considered to be effective hedges are reported in
accumulated other comprehensive income, net of tax. In the case of interest rate swaps, amounts are subsequently
reclassified into interest expense as a yield adjustment of the hedged interest payments in the same period in which
the related interest affects earnings. If the actual interest rate on the fixed rate portion of debt is less than LIBOR, the
monies received are recorded as an offset to interest expense. Conversely, if the actual interest rate on the fixed rate
portion of debt is greater than LIBOR, then the Company pays the difference, which is recorded to interest expense.
Reclassifications of the amounts related to the foreign currency hedge contracts are recorded to earnings in the same
period in which the underlying transaction occurs. Any change in the fair value resulting from ineffectiveness is
immediately recognized in earnings.
The Company also considers counterparty credit risk and its own credit risk in its determination of all
estimated fair values. The Company has applied these valuation techniques as of December 31, 2010 and believes it
has obtained the most accurate information available for the types of derivative contracts it holds. The Company
attempts to manage exposure to counterparty credit risk by only entering into agreements with major financial
institutions which are expected to be able to fully perform under the terms of the agreement.
The Company discontinues hedge accounting prospectively when it is determined that the derivative is no
longer effective in offsetting changes in the cash flows of the hedged item; the derivative expires or is sold,
terminated or exercised; the derivative is no longer designated as a hedging instrument because it is unlikely that a
forecasted transaction will occur; or management determines that the designation of the derivative as a hedging
instrument is no longer appropriate. When hedge accounting is discontinued, the Company continues to carry the
derivative instrument on the balance sheet at its fair value with subsequent changes in fair value included in
earnings, and gains and losses that were accumulated in other comprehensive income are recognized immediately in
earnings to the extent the forecasted transaction is not expected to occur, or when the underlying transaction settles.
To the extent that derivative instruments do not qualify for hedge accounting treatment, the changes in fair
market value of the instruments are reported in the results of operations for the current period.
The Company enters into master netting arrangements for its derivatives to mitigate the credit risk of financial
instruments.
The Company’s hedge agreements do not include provisions requiring collateral. The Company has certain
derivative instruments covered by master netting arrangements whereby, in the event of a default as defined by the
senior secured credit facility or termination event, the non-defaulting party has the right to offset any amounts
payable against any obligation of the defaulting party under the same counterparty agreement.
The entire asset classes of the Company, including hedges, are pledged as collateral for both the term loan and
the revolving credit facility under the Company’s senior secured credit facility (see Note 11, Debt).
89
Interest Rate Swaps
We enter into floating-to-fixed interest rate swap agreements periodically. As of December 31, 2010, the
interest swap agreements had notional amounts totaling $400.0.
Notional Amount
Expires
Variable
Rate
$100
$300
July 2011
July 2011
LIBOR
LIBOR
Fixed
Rate(1)
Effective
Fixed
Rate(2)
Fair Value,
December 31,
2010
4.27%
3.23%
7.18%
4.98%
$(2.9)
$(6.4)
Total
$(9.3)
(1) The fixed rate represents the rate at which interest is paid by the Company pursuant to the terms of its interest
rate swap agreements.
(2) The effective Term B fixed interest rate represents the fixed rate of the derivative instrument plus the 175 basis
point margin on the pro rata share of Term B-1 and 325 basis points margin on the pro rata share of Term B-2
above the variable LIBOR borrowing rate we pay on the Term B loan.
The purpose of entering into these swaps was to reduce the Company’s exposure to variable interest rates. The
interest rate swaps settle on a quarterly basis when interest payments are made. These settlements occur through the
maturity date. The interest rate swaps are being accounted for as cash flow hedges in accordance with FASB
authoritative guidance. The fair value of the interest rate swaps was a liability (unrealized loss) of $(9.3) and $(20.3)
at December 31, 2010 and December 31, 2009, respectively.
Foreign Currency Forward Contracts
Spirit’s wholly-owned subsidiary Spirit AeroSystems (Europe) Limited (“Spirit Europe”) has certain sales,
expenses, assets and liabilities that are denominated in British pounds sterling. However, certain sales of Spirit
Europe’s products and some procurement costs are denominated in U.S. dollars and Euros. As a consequence,
movements in exchange rates could cause net sales and our expenses to fluctuate, affecting our profitability and
cash flows. In addition, even when revenues and expenses are matched, we must translate British pound sterling
denominated results of operations, assets and liabilities for our foreign subsidiaries to U.S. dollars in our
consolidated financial statements. Consequently, increases and decreases in the value of the U.S. dollar as
compared to the British pound sterling will affect our reported results of operations and the value of our assets
and liabilities on our consolidated balance sheet, even if our results of operations or the value of those assets and
liabilities has not changed in its original currency. These transactions could significantly affect the comparability of
our results between financial periods and/or result in significant changes to the carrying value of our assets,
liabilities and shareholders’ equity.
We use foreign currency hedge contracts to reduce our exposure to currency exchange rate fluctuations, which
include hedging contracts to hedge U.S. dollar revenue from certain customers. The objective of these contracts is to
minimize the impact of currency exchange rate movements on our operating results. The hedges are being
accounted for as cash flow hedges in accordance with FASB authoritative guidance. Gains and losses from these
cash flow hedges are recorded to other comprehensive income until the underlying transaction for which the hedge
was placed occurs and then the value in other comprehensive income is reclassified to earnings. During 2010, the
Company entered into foreign currency transactions with notional amounts of $(19.1) million for 2011 through
2013 to hedge revenue streams and known payments. The fair value of the forward contracts was a net liability of
$(1.6) as of December 31, 2010.
90
Notional Amount
Year
2011
2012
2013
December 31, 2010
Foreign
USD
Currency
Buy/(Sell)(1)
Buy/(Sell)(1)
$(44.1)
(8.9)
—
£27.3
5.7
(0.1)
$(53.0)
£32.9
Average
Contract
Rate
Average
Reevaluation
Rate
1.6100
1.6000
1.5600
1.5500
Net Liability
Fair Value
Risk From
Change in
Reevaluation Rate
$(1.3)
(0.2)
(0.1)
$2.2
0.9
—
$(1.6)
$3.1
(1) Includes foreign currency hedge contracts for 2010 through 2013 novated to Spirit Europe as a result of the
acquisition of BAE Aerostructures on April 1, 2006 (buy $0.3/sell £0.4), which had no underlying contractual
transactions at the inception date of the contracts and, therefore, are classified as net debt securities which are
not subject to hedge accounting. The mark-to-market values of these net debt securities are recorded through
the Consolidated Statement of Operations on a monthly basis in accordance with FASB authoritative guidance
on investments — debt and equity securities disclosures.
The following table summarizes the Company’s fair value of outstanding derivatives at December 31, 2010
and December 31, 2009:
Fair Values of Derivative Instruments
Other Asset Derivatives
Other Liability Derivatives
December 31, 2010
December 31, 2009
December 31, 2010
December 31, 2009
Derivatives designated as hedging
instruments
Interest rate swaps
Current. . . . . . . . . . . . . . . . . .
Non-current . . . . . . . . . . . . . .
Foreign currency hedge contracts .
Current. . . . . . . . . . . . . . . . . .
Non-current . . . . . . . . . . . . . .
.
.
.
.
.
$—
—
$—
—
$ 9.3
—
$16.9
3.4
0.1
—
—
—
1.3
0.2
0.9
0.6
Total derivatives designated as
hedging instruments . . . . . . . . . . .
0.1
—
10.8
21.8
Derivatives not designated as
hedging instruments
Foreign currency hedge contracts
Current. . . . . . . . . . . . . . . . . . .
Non-current . . . . . . . . . . . . . . .
0.7
1.2
0.4
1.2
0.7
1.4
0.5
1.4
Total derivatives not designated as
hedging instruments . . . . . . . . . . .
1.9
1.6
2.1
1.9
Total derivatives . . . . . . . . . . . . . . .
$2.0
$1.6
$12.9
$23.7
91
The impact on other comprehensive income (“OCI”) and earnings from cash flow hedges for the twelve
months ended December 31, 2010 and December 31, 2009 was as follows:
Derivatives in
Cash Flow Hedging
Relationships
Amount of Loss
Recognized in OCI, net of
tax, on Derivative
(Effective Portion)
December 31, December 31,
2010
2009
Location of
(Gain) or
Loss
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)
Amount of Loss
Reclassified from
Accumulated OCI into
Income
(Effective Portion)
2010
2009
Location of
(Gain) or Loss
Recognized in
Income on
Derivative
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)
Amount of Loss
Recognized in Income on
Derivative (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing)
2010
2009
Interest rate
swaps . . . . . . . .
$(3.0)
$(5.7)
Interest expense
$15.0
$15.5
Other (income)/
expense
$—
$—
Foreign currency
hedge contracts . .
(1.3)
(1.0)
Sales/ Revenue
1.1
3.3
Other (income)/
expense
—
—
Total . . . . . . . . . .
$(4.3)
$(6.7)
$16.1
$18.8
$—
$—
The impact on earnings from foreign currency hedge contracts that do not qualify as cash flow hedges was not
material for the twelve months ended December 31, 2010 and December 31, 2009.
Gains and losses accumulated in OCI for interest rate swaps are reclassified into earnings as each interest rate
period is reset. During the next twelve months, the Company estimates that a loss of $(6.0) will be reclassified from
OCI, net of tax, as a charge to earnings from interest rate swaps. Interest rate swaps are placed for a period of time
not to exceed the maturity of the Company’s senior secured term loan. None of the gains or losses reclassified to
earnings were attributable to the discontinuance of cash flow hedges.
Gains and losses accumulated in OCI for foreign currency hedge contracts are reclassified into earnings as the
underlying transactions for which the contracts were entered into are realized. During the next twelve months, the
Company estimates that a loss of $(1.3) will be reclassified from OCI, net of tax. None of the gains or losses
reclassified to earnings are attributable to the discontinuance of cash flow hedges.
10.
Fair Value Measurements
FASB’s authoritative guidance on fair value measurements defines fair value as the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants on the measurement date. It also
establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The guidance discloses three levels of inputs that may be
used to measure fair value:
Level 1
Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 1 assets
and liabilities include debt and equity securities and derivative contracts that are traded in an
active exchange market.
Level 2
Observable inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of the assets or
liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are
traded less frequently than exchange-traded instruments and derivative contracts whose
92
value is determined using a pricing model with inputs that are observable in the market or
can be derived principally from or corroborated by observable market data. Observable
inputs, such as current and forward interest rates and foreign exchange rates, are used in
determining the fair value of our interest rate swaps and foreign currency hedge contracts.
Level 3
Unobservable inputs that are supported by little or no market activity and that are significant
to the fair value of assets and liabilities. Level 3 assets and liabilities include financial
instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair
value requires significant management judgment or estimation.
Description
Money Market Fund
Interest Rate Swaps
Foreign Currency
Hedge Contracts
December 31, 2010
Total Carrying
Assets
Liabilities
Amount in
Measured at
Measured at
Balance Sheet
Fair Value
Fair Value
At December 31, 2010
Using
Quoted Prices in Significant
Significant
Other
Active Markets
Observable Unobservable
for Identical
Inputs
Inputs
Assets
(Level 3)
(Level 2)
(Level 1)
$372.1
$ (9.3)
$372.1
$ —
$ —
$(9.3)
$372.1
$ —
$ —
$(9.3)
$—
$—
$ (1.6)
$
$(3.6)
$
$(1.6)
$—
2.0
—
Description
Money Market Fund
Interest Rate Swaps
Foreign Currency
Hedge Contracts
December 31, 2009
Total Carrying
Assets
Liabilities
Amount in
Measured at
Measured at
Balance Sheet
Fair Value
Fair Value
At December 31, 2009
Using
Quoted Prices in Significant
Significant
Other
Active Markets
Observable Unobservable
for Identical
Inputs
Inputs
Assets
(Level 3)
(Level 2)
(Level 1)
$240.0
$ (20.3)
$240.0
$ —
$ —
$(20.3)
$240.0
$ —
$ —
$(20.3)
$—
$—
$ (1.8)
$
$ (3.4)
$
$ (1.8)
$—
1.6
—
The fair value of the interest rate swaps and foreign currency hedge contracts are determined by using
mark-to-market reports generated for each derivative and evaluated for counterparty risk. In the case of the interest
rate swaps, the Company evaluated its counterparty risk using credit default swaps, historical default rates and
credit spreads.
The Company’s long-term debt consists of obligations with variable interest rates and senior unsecured notes.
The estimated fair value of our debt obligations is based on the quoted market prices for such obligations. The
93
following table presents the carrying amount and estimated fair value of long-term debt in accordance with FASB
authoritative guidance on fair value measurements related to disclosures of financial instruments:
December 31, 2010
Carrying
Fair
Amount
Value
Senior secured term loan (including current portion) .
Senior unsecured notes due 2017. . . . . . . . . . . . . . . .
Senior unsecured notes due 2020. . . . . . . . . . . . . . . .
Malaysian loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.
December 31, 2009
Carrying
Fair
Amount
Value
. . $ 566.2
..
294.2
..
300.0
..
18.2
$ 568.3
315.0
300.4
17.9
$572.0
293.6
—
16.3
$549.9
289.5
—
16.1
$1,178.6
$1,201.6
$881.9
$855.5
Debt
Total debt shown on the balance sheet is comprised of the following:
December 31,
2010
December 31,
2009
...........
...........
...........
...........
...........
$ 566.1
594.2
18.2
17.2
1.1
$572.0
293.6
16.3
10.3
1.6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,196.8
$893.8
Senior secured debt (short and long-term) . . . . . . . . . . . .
Long-term bond debt (due 2017 and 2020) . . . . . . . . . . .
Malaysian term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Present value of capital lease obligations . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Secured Term Loan
We are a party to a credit agreement that consists of a senior secured term loan and a senior secured revolving
line of credit. On October 15, 2010, we entered into Amendment No. 3 to the credit agreement. As a result of the
amendment, among other things, the revolving credit commitment was increased from $408.8 to $650.0 and the
maturity date of the revolving credit commitment was extended to September 30, 2014. The credit agreement
amendment also extended the maturity date for $437.4 of the outstanding term loan to September 30, 2016. The
maturity date for the $130.2 balance of the outstanding term loan remains September 30, 2013. Substantially all of
Spirit’s assets, including inventory and property, plant and equipment are pledged as collateral for both the term
loan and the revolving credit facility. As of December 31, 2010 and December 31, 2009, the outstanding balance of
the term loan was $566.1 and $572.0, respectively. Amounts outstanding under the revolving credit facility were
zero at December 31, 2010 and December 31, 2009. As of December 31, 2010, there were $18.9 of letters of credit
outstanding under the revolving credit agreement.
Revolving credit borrowings bear interest at a rate equal to, at Spirit’s option, (a) a base rate determined by
reference to the highest of (1) the prime rate of our administrative agent (currently Bank of America, N.A.), (2) the
federal funds rate plus 1/2 of 1.0% and (3) LIBOR for an interest period of one month commencing on such date
plus 1.0%, in each case plus an applicable margin, or (b) a LIBOR rate determined by reference to the cost of funds
for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, plus
an applicable margin. As of the issue date, the applicable margin with respect to base rate borrowings under this
portion of the revolving credit facility is 2.50% and the applicable margin with respect to LIBOR rate borrowings
under this portion of the revolving credit facility is 3.50%. The applicable margin for borrowings under this portion
of the revolving credit facility are subject to adjustment based on our consolidated total leverage, and may range
from 2.00% to 3.00% with respect to base rate borrowings and from 3.00% to 4.00% with respect to LIBOR rate
94
borrowings. At December 31, 2010, the Company’s total leverage ratio was 2.36:1.0 resulting in applicable margins
of 3.5% per annum on LIBOR borrowings on Extending Revolving Loans and margins of 2.5% per annum on
alternative base rate borrowings on Extending Revolving Loans.
In addition to paying interest on outstanding principal under the senior secured credit facility, Spirit is required
to pay an unused line fee of 75 basis points on the unused portion of the commitments under the revolving credit
facility. Spirit is required to pay participation fees equal to the applicable margin for LIBOR rate revolving credit
borrowings with respect to letters of credit issued under the revolving credit facility. Spirit is also required to pay to
the issuing banks under its senior secured credit facility letter of credit fronting fees in respect of letters of credit
equal to 25 basis points per year, and to the administrative agent thereunder customary administrative fees.
The credit agreement contains customary affirmative and negative covenants, including restrictions on
indebtedness, liens, type of business, acquisitions, investments, sales or transfers of assets, payments of dividends,
transactions with affiliates, change in control and other matters customarily restricted in such agreements. The
credit agreement also contains Covenant Leverage Ratio, Interest Coverage Ratio and Total Leverage Ratio
financial covenants. The Covenant Leverage Ratio covenant (as defined in the credit agreement) provides that the
Covenant Leverage Ratio shall not exceed 2.5:1 through the final maturity date of the credit agreement. The Interest
Coverage Ratio covenant (as defined in the credit agreement) provides that the Interest Coverage Ratio shall not be
less than 4:1 through the final maturity date of the credit agreement. The Total Leverage Ratio covenant (as defined
in the credit agreement) provides that the Total Leverage Ratio shall not exceed 3.5:1.0 through the final maturity
date of the credit agreement. The Financial Covenant ratios are calculated as of the last day of each fiscal quarter.
Failure to meet these financial covenants would be an event of default under the credit agreement. As of
December 31, 2010, we were and expect to remain in full compliance with all covenants contained within our
credit agreement.
2017 Notes
On September 30, 2009, Spirit issued $300.0 of 71⁄2% Senior Notes due October 1, 2017 (the “2017 Notes”).
The 2017 Notes bear interest at a rate of 71⁄2% per year, payable semi-annually, in cash in arrears, on April 1 and
October 1 of each year, commencing April 1, 2010. Prior to October 1, 2012, Spirit may redeem up to 35% of the
aggregate principal amount of the 2017 Notes with the proceeds of certain equity offerings at a redemption price of
107.5% of the principal amount thereof, plus accrued and unpaid interest and additional interest, if any, to the
redemption date. At any time prior to October 1, 2013, Spirit may redeem the 2017 Notes, in whole or in part, at a
redemption price ratio equal to 100% of the principal amount of the 2017 Notes redeemed, plus a make-whole
premium, plus any accrued and unpaid interest and additional interest, if any, to the redemption date. Spirit may
redeem the 2017 Notes at its option, in whole or in part, at any time on or after October 1 of the years set forth below,
upon not less than 30 nor more than 60 days’ notice at the redemption prices (expressed as percentages of the
principal amount to be redeemed) set forth below, plus any accrued and unpaid interest and additional interest, if
any, to the redemption date, if redeemed during the 12 month period beginning October 1 of the years indicated
below.
Year
Price
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
103.750%
101.875%
100.000%
If a change of control of Spirit occurs, each holder of the 2017 Notes shall have the right to require that Spirit
repurchase all or a portion of such holder’s 2017 Notes at a purchase price of 101% of the principal amount thereof,
plus accrued and unpaid interest and additional interest, if any, to the date of repurchase.
95
The 2017 Notes are Spirit’s senior unsecured obligations and rank equal in right of payment with all of Spirit’s
other existing and future senior indebtedness. The 2017 Notes are fully and unconditionally guaranteed, jointly and
severally, on a senior unsecured basis by Holdings and Spirit’s existing and future domestic subsidiaries that
guarantee Spirit’s obligations under Spirit’s senior secured credit facility. As of December 31, 2010 and
December 31, 2009, the outstanding balance of the 2017 Notes was $294.2 and $293.6, respectively.
The indenture governing the 2017 Notes contains covenants that limit Spirit’s, Holdings’ and certain of Spirit’s
subsidiaries’ ability, subject to certain exceptions and qualifications, to (i) incur additional debt; (ii) pay dividends,
redeem stock or make other distributions, (iii) repurchase equity securities, prepay subordinated debt or make
certain investments, (iv) make other restricted payments and investments, (v) issue certain disqualified stock and
preferred stock, (vi) create liens without granting equal and ratable liens to the holders of the Notes, (vii) enter into
sale and leaseback transactions, (viii) merge, consolidate or transfer or dispose of substantially all of their assets,
(ix) enter into certain types of transactions with affiliates and (x) sell assets. These covenants are subject to a number
of qualifications and limitations. As of December 31, 2010, we were and expect to remain in full compliance with all
covenants contained within the 2017 Notes indenture.
In addition, the Indenture provides for customary events of default which include (subject in certain cases to
customary grace and cure periods), among other things: failure to make payments on the 2017 Notes when due,
failure to comply with covenants under the Indenture, failure to pay certain other indebtedness or acceleration of
maturity of certain other indebtedness, failure to satisfy or discharge certain final judgments and occurrence of
certain bankruptcy events.
2020 Notes
On November 18, 2010, Spirit issued $300.0 million of 63⁄4% Senior Notes due December 15, 2020 (the “2020
Notes”), of which a portion was used to repay $150.0 in borrowings under the senior secured credit facility. The
2020 Notes were sold at a price equal to 100% of the principal amount thereof. The 2020 Notes bear interest at a rate
of 63⁄4% per year, payable semi-annually, in cash in arrears, on June 15 and December 15 of each year, commencing
June 15, 2011. Spirit may redeem the 2020 Notes at its option, in whole or in part, at any time on or after
December 15 of the years set forth below, upon not less than 30 nor more than 60 days’ notice at the redemption
prices (expressed as percentages of the principal amount to be redeemed) set forth below, plus any accrued and
unpaid interest and additional interest, if any, to the redemption date, if redeemed during the 12-month period
beginning on December 15 of the years indicated below.
Year
2015
2016
2017
2018
Price
.................................
.................................
.................................
and thereafter . . . . . . . . . . . . . . . . . . . . . .
...............................
...............................
...............................
...............................
103.375%
102.250%
101.125%
100.000%
If a change of control of Spirit occurs, each holder shall have the right to require that Spirit repurchase all or a
portion of such holder’s 2020 Notes at a purchase price of 101% of the principal amount thereof, plus accrued and
unpaid interest and additional interest, if any, to the date of repurchase.
The 2020 Notes are Spirit’s senior unsecured obligations and rank equal in right of payment with all of Spirit’s
other existing and future senior indebtedness, including the 2017 Notes. The 2020 Notes are to be fully and
unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company and the Company’s
existing and future domestic subsidiaries that guarantee Spirit’s obligations under Spirit’s senior secured credit
facility. As of December 31, 2010, the outstanding balance of the 2020 Notes was $300.0.
96
The indenture governing the 2020 Notes contains covenants that limit Spirit’s, the Company’s and certain of
Spirit’s subsidiaries’ ability, subject to certain exceptions and qualifications, to (i) incur additional debt, (ii) pay
dividends, redeem stock or make other distributions, (iii) repurchase equity securities, prepay subordinated debt or
make certain investments, (iv) make other restricted payments and investments, (v) issue certain disqualified stock
and preferred stock, (vi) create liens without granting equal and ratable liens to the holders of the Notes, (vii) enter
into sale and leaseback transactions, (viii) merge, consolidate or transfer or dispose of substantially all of their
assets, (ix) enter into certain types of transactions with affiliates and (x) sell assets. These covenants are subject to a
number of qualifications and limitations. In addition, the indenture limits Spirit’s, the Company’s and the guarantor
subsidiaries’ ability to engage in businesses other than businesses in which such companies are engaged on the date
of issuance of the Notes and related businesses. As of December 31, 2010, we were and expect to remain in full
compliance with all covenants contained within the 2020 Notes indenture.
In addition, the indenture provides for customary events of default which include (subject in certain cases to
customary grace and cure periods), among other things: failure to make payments on the 2020 Notes when due,
failure to comply with covenants under the indenture, failure to pay certain other indebtedness or acceleration of
maturity of certain other indebtedness, failure to satisfy or discharge certain final judgments and occurrence of
certain bankruptcy events.
Malaysian Term Loan
On June 2, 2008, the Company’s wholly-owned subsidiary, Spirit AeroSystems Malaysia SDN BHD entered
into a Facility Agreement (“Facility Agreement”) for a term loan facility for Ringgit Malaysia RM69.2 (approximately USD $20.0 equivalent) (the “Malaysia Facility”), with the Malaysian Export-Import Bank. The facility
requires quarterly principal repayments of RM3.3 (USD $1.0) from September 2011 through May 2017 and
quarterly interest payments payable at a fixed interest rate of 3.5% per annum. The Malaysia Facility loan balance as
of December 31, 2010 was $18.2.
France Factory
On July 17, 2009, the Company’s indirect wholly-owned subsidiary, Spirit AeroSystems France SARL (“Spirit
France”) entered into a capital lease agreement for A9.0 (approx. USD$13.1 equivalent) with BNP Paribas Bank
(“BNP”) to be used towards the construction of an aerospace-related component assembly plant in Saint-Nazaire,
France (the “Saint-Nazaire Project”). The Saint-Nazaire Project was completed in the fourth quarter of 2010 and is
expected to be operational during 2011. Lease payments are variable, subject to the three-month Euribor rate plus
2.2%. Lease payments are due quarterly through April 2025. As of December 31, 2010, the Company has recorded
A9.0 (approx. USD$12.4 equivalent) of debt attributable to the capital lease.
12.
Pension and Other Post-Retirement Benefits
Multi-Employer Pension Plan
In connection with the collective bargaining agreement signed with the International Association of Machinists and
Aerospace Workers (IAM), the Company contributes to a multi-employer defined benefit pension plan (IAM National
Pension Fund). The level of contribution, as specified in the bargaining agreement was $1.35 per hour of employee
service for a maximum of 80 hours per bi-weekly pay period through June 30, 2010. Effective July 1, 2010 the
contribution per the collective bargaining agreement is $1.50 per hour of employee service for a maximum of 80 hours
per bi-weekly pay period. The IAM bargaining agreement provides for a $0.05 increase per hour in the contribution rate
beginning on July 1, 2011, with an additional $0.05 increase effective July 1 of each year through 2019.
The collective bargaining agreement with the UAW requires the Company to contribute a specified amount per
hour of service to a multi-employer defined benefit pension plan (IAM National Pension Fund). The specified
97
amount was $1.30 in 2009 and $1.35 in 2010. Per the newly negotiated UAW collective bargaining agreement, the
pension contributions will be as follows:
Effective
Effective
Effective
Effective
Effective
Effective
Effective
1/1/2011 — $1.45
1/1/2012 — $1.50
1/1/2014 — $1.55
1/1/2016 — $1.60
1/1/2018 — $1.65
1/1/2019 — $1.70
1/1/2020 — $1.75
The Company made contributions of $19.9 and $18.1 to the IAM National Pension Fund on behalf of IAM and
UAW members for the twelve months ended December 31, 2010 and December 31, 2009, respectively.
Defined Contribution Plans
The Company contributes to a defined contribution plan available to all employees, excluding IAM and UAW
represented employees. Under the plan, the Company makes a matching contribution of 75% of the employee
contribution to a maximum 8% of eligible individual employee compensation. In addition, non-matching contributions based on an employee’s age and service are paid at the end of each calendar year for certain employee
groups.
The Company recorded $36.4 and $35.5 in contributions to these plans for the twelve months ended
December 31, 2010 and December 31, 2009, respectively.
On April 1, 2006, as part of the acquisition of BAE Aerostructures, the Company established a defined
contribution pension plan for those employees who are hired after the date of acquisition. Under the plan, the
Company contributes 8% of basic salary while participating employees are required to contribute 4% of basic
salary. The Company recorded $0.9 in contributions to this plan for the period ended December 31, 2010, and $0.9
in contributions for the period ended December 31, 2009.
Defined Benefit Pension Plans
Effective June 17, 2005, pension assets and liabilities were spun-off from three Boeing qualified plans into four
qualified Spirit AeroSystems plans for each Spirit employee who did not retire from Boeing by August 1, 2005.
Effective December 31, 2005, all four qualified plans were merged together. In addition, Spirit has one nonqualified
plan providing supplemental benefits to executives (SERP) who transferred from a Boeing nonqualified plan to a
Spirit AeroSystems plan and elected to keep their benefits in this plan. Both plans are frozen as of the date of
acquisition (i.e., no future service benefits are being earned in these plans). We intend to fund our qualified pension
plan through a trust. Pension assets are placed in trust solely for the benefit of the pension plans’ participants and are
structured to maintain liquidity that is sufficient to pay benefit obligations.
On April 1, 2006, as part of the acquisition of BAE Aerostructures, the Company established a defined benefit
pension plan for those employees that had pension benefits remaining in BAE Systems’ pension plan. The plan is
not open to new participants. The liability to the Company represents the cost of providing benefits in line with
salary increases to the extent that future salary increases exceed the inflation adjustments applied to the benefits
within the BAE Systems plan. BAE Systems will provide increases to past service benefits in line with inflation,
subject to a maximum of 5% per annum compounded, and the Company’s plan is responsible for funding the
difference between the BAE Systems increases and actual salary increases. In addition, this plan provides future
service benefit accruals for covered employees.
98
Other Post-Retirement Benefit Plans
We also have post-retirement health care coverage for eligible U.S. retirees and qualifying dependents prior to
age 65. Eligibility for employer-provided benefits is limited to those employees who were employed at the date of
acquisition (Spirit) and retire on or after attainment of age 62 and 10 years of service. Employees who do not satisfy
these eligibility requirements can retire with post-retirement medical benefits at age 55 and 10 years of service, but
they must pay the full cost of medical benefits provided.
Changes Required by FASB Authoritative Guidance
As of December 31, 2009, we reflect an asset of $171.2 for our qualified pension plan, a liability of $0.8 for our
nonqualified pension plan and a liability of $61.9 for our post-retirement medical plan. For the U.K. plan, we reflect
a liability of $0.1 as of December 31, 2009. The pension and post-retirement medical plan adjustment to
accumulated other comprehensive income (AOCI) for the fiscal year ended December 31, 2009 is $(90.9) or
$(55.8), net of tax.
Obligations and Funded Status
The following tables reconcile the funded status of both pension and post-retirement medical benefits to the
balance on the Consolidated Balance Sheets for the fiscal years 2010 and 2009. Benefit obligation balances
presented in the tables reflect the projected benefit obligation (PBO) and accumulated benefit obligation (ABO) for
our pension plans, and accumulated post-retirement benefit obligations (APBO) for our post-retirement medical
plan. We use an end of fiscal year measurement date of December 31 for our U.S. pension and post-retirement
medical plans as required by FASB authoritative guidance.
99
U.S. Plans
Change in projected benefit obligation:
Beginning Balance . . . . . . . . . . . . . . . . .
Service Cost . . . . . . . . . . . . . . . . . . . .
Interest Cost . . . . . . . . . . . . . . . . . . . .
Actuarial (gains) and losses . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . .
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Pension Benefits
Other
Post-Retirement
Benefits
Periods Ended
December 31,
Periods Ended
December 31,
2010
2010
2009
2009
. $645.5 $619.1 $ 61.9 $ 44.4
.
—
—
2.9
2.0
.
39.5
37.5
3.9
2.8
.
63.2
(8.7)
3.4
12.7
.
(1.8)
(2.4)
(0.1)
—
Projected benefit obligation at the end of the period . . . . . . . . . . . . . . . . . . . . . . . . . $746.4 $645.5 $ 72.0 $ 61.9
Assumptions used to determine benefit obligation:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . .
Medical assumptions:
Trend assumed for the year . . . . . . . . . . . . . . . . . .
Ultimate trend rate . . . . . . . . . . . . . . . . . . . . . . . .
Year that ultimate trend rate is reached . . . . . . . . . .
Change in fair value of plan assets:
Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on assets . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses paid . . . . . . . . . . . . . . . . . . . . . . . . . .
........................
........................
5.67%
N/A
6.15% 5.33%
N/A
N/A
........................
........................
........................
N/A
N/A
N/A
N/A
N/A
N/A
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5.89%
N/A
9.47% 10.00%
4.50% 4.50%
2030
2030
. $815.9 $678.4 $ — $
. 101.3 141.7
—
.
(1.8)
(2.4)
—
.
(0.4)
(1.8)
—
—
—
—
—
Ending Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $915.0 $815.9 $ — $
—
Reconciliation of funded status to net amounts recognized:
Funded status (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $168.6 $170.4 $(72.0) $ (61.9)
Employer contributions between measurement date and fiscal year end . . . . . . . . . . . .
—
—
—
—
Net amounts recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $168.6 $170.4 $(72.0) $ (61.9)
Amounts recognized in the balance sheet:
Noncurrent assets . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities . . . . . . . . . . . . . . . . . .
Net amounts recognized . . . . . . . . . . . . . . .
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. $169.5 $171.2 $ — $ —
.
—
—
(0.3)
(0.2)
.
(0.9)
(0.8) (71.7) (61.7)
. $168.6 $170.4 $(72.0) $ (61.9)
Amounts not yet reflected in net periodic benefit cost and included in AOCI:
Accumulated gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (76.2) (52.9) (15.8) (13.3)
Accumulated other comprehensive income (AOCI) . . . . . . . . . . . . . . . . . . . . . . . . . . $ (76.2) $ (52.9) $(15.8) $ (13.3)
Cumulative employer contributions in excess of net periodic benefit cost . . . . . . . . . . 244.8 223.3 (56.2) (48.6)
Net amount recognized in the balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $168.6 $170.4 $(72.0) $ (61.9)
Information for pension plans with benefit obligations in excess of plan assets
Projected benefit obligation/APBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.9 $ 0.8 $ 72.0 $ 61.9
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.9
0.8
—
—
100
Pension
Benefits
Periods Ended
December 31,
2010
2009
U.K. Plans
Change in projected benefit obligation:
Beginning Balance . . . . . . . . . . . . . . . . . .
Service Cost. . . . . . . . . . . . . . . . . . . . .
Interest Cost. . . . . . . . . . . . . . . . . . . . .
Employee contributions. . . . . . . . . . . . .
Actuarial (gains) and losses . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . .
Rebates from U.K. Government . . . . . . .
Exchange rate changes . . . . . . . . . . . . .
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. $39.8
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5.8
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2.2
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0.1
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(0.5)
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(0.1)
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0.8
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(1.7)
Projected benefit obligation at the end of the period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $46.4
Assumptions used to determine benefit obligation:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . .
Change in fair value of plan assets:
Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on assets . . . . . . . . . . . . . . . . . . . .
Company contributions . . . . . . . . . . . . . . . . . . . .
Employee contributions. . . . . . . . . . . . . . . . . . . .
Rebates from U.K. Government . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange rate changes . . . . . . . . . . . . . . . . . . . .
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5.30%
3.55%
. $39.7
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4.0
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7.3
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0.1
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0.1
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(0.1)
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(1.7)
Ending Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $49.4
Reconciliation of funded status to net amounts recognized:
Funded status (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$25.3
5.8
1.4
0.1
3.2
(0.1)
0.9
3.2
$39.8
5.70%
4.20%
$23.2
5.1
7.6
0.1
0.8
(0.1)
3.0
$39.7
3.0
(0.1)
Net amounts recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.0
$ (0.1)
Amounts recognized in the balance sheet:
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.0
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
$ —
(0.1)
Net amounts recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.0
$ (0.1)
Amounts not yet reflected in net periodic benefit cost and included in AOCI:
Accumulated gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (AOCI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid (unfunded accrued) pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.3
8.3
(5.3)
8.0
8.0
(8.1)
Net amount recognized in the balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.0
$ (0.1)
Information for pension plans with benefit obligations in excess of plan assets
Projected benefit obligation/APBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ —
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Fair value of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ —
$39.8
25.0
$39.7
101
Annual Expense
The components of pension and other post-retirement benefit plans expense for the U.S. plans and the
assumptions used to determine benefit obligations for 2010, 2009 and 2008 are as follows:
U.S. Plans
Components of net periodic benefit cost
(income):
Service Cost . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Cost . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . .
Amortization of net (gain) loss . . . . . . . . . . . . .
Amortization of prior service cost. . . . . . . . . . .
Net periodic benefit cost (income) . . . . . . . . . .
Other changes recognized in OCI:
Total recognized in OCI (income) loss . . . . . . .
Total recognized in net periodic benefit cost
and OCI. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumptions Used to Determine Net Periodic
Benefit Costs:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . .
Salary increases . . . . . . . . . . . . . . . . . . . . . . . .
Medical Assumptions:
Trend assumed for the year . . . . . . . . . . . . . . . . .
Ultimate trend rate . . . . . . . . . . . . . . . . . . . . . . .
Year that ultimate trend rate is reached. . . . . . . . .
Other
Post-Retirement
Benefits
Periods Ended
December 31,
2010
2009
2008
Pension Benefits
Periods Ended
December 31,
2010
2009
2008
$
—
39.5
(61.0)
—
—
(21.5)
$
—
37.5
(54.1)
8.5
—
(8.1)
$
—
36.9
(70.1)
(5.4)
—
$
(38.6)
2.9
3.9
—
0.9
—
$ 2.0
2.8
—
—
—
$ 1.5
2.0
—
(0.5)
—
7.7
4.8
3.0
$ 23.3
$(103.1)
$300.5
$
2.4
$ 12.8
$ 7.6
$ 1.8
$(111.2)
$261.9
$ 10.1
$ 17.6
$ 10.6
6.15%
7.50%
N/A
6.07%
8.00%
N/A
6.60%
8.00%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
5.89%
N/A
N/A
6.34%
N/A
N/A
6.40%
N/A
N/A
10.00%
4.50%
2030
9.00%
5.00%
2013
10.00%
5.00%
2013
The estimated net gain (loss) that will be amortized from accumulated other comprehensive income into net
periodic benefit cost over the next fiscal year for Other Post-Retirement Benefits plans is $0.8.
102
The components of the pension benefit plan expense for the U.K. plans and the assumptions used to determine
benefit obligations for 2010, 2009 and 2008 are as follows:
U.K. Plans
Pension Benefits
Periods Ended December 31,
2010
2009
2008
Components of net periodic benefit cost (income):
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5.8
2.1
(2.7)
(0.3)
—
$ 5.8
1.5
(1.7)
(0.4)
—
$ 8.0
1.5
(1.6)
(0.3)
—
$ 4.9
$ 5.2
$ 7.6
$ (1.1)
$ 3.8
$ (0.6)
$ 4.6
$ (0.2)
$ 7.4
Net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other changes recognized in OCI:
Total income recognized in OCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total recognized in net periodic benefit cost and OCI . . . . . . . . . . . . . . . .
Assumptions Used to Determine Net Periodic Benefit Costs:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salary increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.70%
6.50%
4.20%
5.40%
5.74%
3.50%
5.40%
6.27%
4.00%
The estimated net (gain) loss that will be amortized from accumulated other comprehensive income into net
periodic benefit cost over the next fiscal year for U.K. plans is $(0.3).
Assumptions
The Company sets the discount rate assumption annually for each of its retirement-related benefit plans as of
the measurement date, based on a review of projected cash flow and a long-term high-quality corporate bond yield
curve. The discount rate determined on each measurement date is used to calculate the benefit obligation as of that
date, and is also used to calculate the net periodic benefit (income)/cost for the upcoming plan year.
The pension expected return on assets assumption is derived from the long-term expected returns based on the
investment allocation by class specified in the Company’s investment policy. The expected return on plan assets
determined on each measurement date is used to calculate the net periodic benefit (income)/cost of the upcoming
plan year.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans.
To determine the health care cost trend rates the Company considers national health trends and adjusts for its
specific plan design and locations.
A one-percentage point increase in the initial through ultimate assumed health care trend rates would have
increased the accumulated post-retirement benefit obligation by $7.3 at December 31, 2010 and the aggregate
service and interest cost components of non-pension post-retirement benefit expense for 2010 by $0.7. A onepercentage point decrease would have decreased the obligation by $6.6 and the aggregate service and interest cost
components of non-pension post-retirement benefit expense for 2010 by $0.6.
103
U.S. Plans
The Company’s investment objective is to achieve long-term growth of capital, with exposure to risk set at an
appropriate level. This objective shall be accomplished through the utilization of a diversified asset mix consisting
of equities (domestic and international) and taxable fixed income securities. The allowable asset allocation range is:
Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20% - 50%
50% - 80%
0% - 7%
Investment guidelines include that no security, except issues of the U.S. Government, shall comprise more than
5% of total Plan assets and further, no individual portfolio shall hold more than 7% of its assets in the securities of
any single entity, except issues of the U.S. Government. The following derivative transactions are prohibited —
leverage, unrelated speculation and “exotic” collateralized mortgage obligations or CMOs. Investments in hedge
funds, private placements, oil and gas and venture capital must be specifically approved by the Company in advance
of their purchase.
The Company’s plans have asset allocations for the U.S., as of December 31, 2010 and December 31, 2009, as
follows:
2010
Asset Category — U.S.
Equity securities — U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities — International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29%
4%
65%
2%
2009
50%
6%
40%
4%
100% 100%
U.K. Plans
The Trustee’s investment objective is to ensure that they can meet their obligation to the beneficiaries of the
Plan. An additional objective is, to achieve a return on the total Plan which is compatible with the level of risk
considered appropriate. The overall benchmark allocation of the Plan’s assets is:
Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60%
40%
The Company’s plans have asset allocations for the U.K., as of December 31, 2010 and December 31, 2009, as
follows:
2010
Asset Category — U.K.
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
104
56%
39%
5%
2009
60%
38%
2%
100% 100%
Projected contributions and benefit payments
Required pension contributions under Employee Retirement Income Security Act (ERISA) regulations are
expected to be zero in 2011 and discretionary contributions are not expected in 2011. SERP and post-retirement
medical plan contributions in 2011 are not expected to exceed $0.4. Expected contributions to the U.K. plan for
2011 are $7.3.
We monitor our defined benefit pension plan asset investments on a quarterly basis and we believe that we are
not exposed to any significant credit risk in these investments.
The total benefits expected to be paid over the next ten years from the plans’ assets or the assets of the
Company, by country, are as follows:
U.S.
2011. . . . . . . . . . . . . . . . . . . .
2012. . . . . . . . . . . . . . . . . . . .
2013. . . . . . . . . . . . . . . . . . . .
2014. . . . . . . . . . . . . . . . . . . .
2015. . . . . . . . . . . . . . . . . . . .
2016-2020 . . . . . . . . . . . . . . .
.............................
.............................
.............................
.............................
.............................
.............................
Pension Plans
Other
Post-Retirement
Benefit Plans
$ 6.6
9.1
12.4
16.4
21.1
192.0
$ 0.3
0.5
1.8
4.2
7.5
53.7
U.K.
Pension Plans
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
............................
............................
............................
............................
............................
............................
$0.3
0.4
0.5
0.6
0.8
6.7
The pension plan assets are valued at fair value. A financial instrument’s level within the fair value hierarchy is
based on the lowest level of any input that is significant to the fair value measurement. The following is a description
of the valuation methodologies used for the investments measured at fair value, including the general classification
of such instruments pursuant to the valuation hierarchy.
Temporary Cash Investments — These investments consist of U.S. dollars and foreign currencies held in
master trust accounts. Foreign currencies held are reported in terms of U.S. dollars based on currency exchange
rates readily available in active markets. These temporary cash investments are classified as level 1 investments.
Collective Investment Trusts — These investments are public investment vehicles valued using middle market
prices and performance of the fund. The trust allocates notional units to the policy holder based on the underlying
notional unit buy (offer) price using the middle market price plus transaction costs. These investments are classified
within level 3 of the valuation hierarchy.
Commingled Equity and Bond Funds — These investments are valued at the closing price reported by the Plan
Trustee. These investments are not being traded in an active market, but are backed by various investment securities
managed by the Bank of New York. Fair value is being calculated using unobservable inputs that rely on the Bank of
105
New York’s own assumptions and are therefore classified within level 3 of the valuation hierarchy, although these
assumptions are based on underlying investments which are traded on an active market.
As of December 31, 2010, the pension plan assets measured at fair value on a recurring basis were as follows:
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Temporary cash investments . . . . . . . . . . . . . $ 0.6
Collective Investment Trusts . . . . . . . . . . . . . $ 48.8
Commingled Equity and Bond Funds . . . . . . . $915.0
$0.6
$—
$—
$—
$—
$—
$ —
$ 48.8
$915.0
$964.4
$0.6
$—
$963.8
Description
Total
The table below sets forth a summary of changes in the fair value of the Plan’s level 3 investment assets and
liabilities for the year ended December 31, 2010:
Description
Collective Investment Trusts . . . .
Commingled Equity and Bond
Funds . . . . . . . . . . . . . . . . . . .
13.
Beginning
Fair Value
Gain (Loss)
Sales,
Maturities,
Settlements, Net
Exchange
rate
Ending Fair
Value
$ 38.9
$
4.0
$ 7.5
$(1.6)
$ 48.8
$808.0
$104.3
$ 2.7
$ —
$915.0
$846.9
$108.3
$10.2
$(1.6)
$963.8
Capital Stock
Holdings has authorized 360,000,000 shares of stock. Of that, 200,000,000 shares are class A common stock,
par value $0.01 per share, one vote per share, 150,000,000 shares are class B common stock, par value $0.01 per
share, ten votes per share, and 10,000,000 shares are preferred stock, par value $0.01 per share.
In association with the Boeing Acquisition, Spirit executives with balances in Boeing’s Supplemental
Executive Retirement Plan (SERP) were authorized to purchase a fixed number of units of Holdings “phantom
stock” at $3.33 per unit based on the present value of their SERP balances. Under this arrangement, 860,244
phantom units were purchased. Any payment on account of units may be made in cash and/or shares of class B
common stock at the sole discretion of Holdings.
14.
Stock Compensation
Holdings has established various stock compensation plans which include restricted share grants and stock
purchase plans. Compensation values are based on the value of Holdings’ common stock at the grant date. The
common stock value is added to equity and charged to period expense or included in inventory and cost of sales.
For the fiscal period ended December 31, 2010, Holdings has recognized a net total of $28.8 of stock
compensation expense, which is net of $1.2 resulting from stock forfeitures. Of the total $28.8 of net stock
compensation expense recorded in 2010, $20.5 was charged directly to cost of sales, $7.9 was recorded as selling,
general and administrative expense, while the remaining $0.4 was capitalized in inventory and is recognized
through cost of sales consistent with the accounting methods we follow in accordance with FASB authoritative
guidance. Holdings recognized a total of $10.1 and $15.7 of stock compensation expense for the periods ended
December 31, 2009 and December 31, 2008, respectively. The total income tax benefit recognized in the income
106
statement for share based compensation arrangements was $10.8, $3.8, and $5.9 for 2010, 2009, and 2008,
respectively.
Executive Incentive Plan
The Company’s Executive Incentive Plan, or EIP, is designed to provide participants with the opportunity to
acquire an equity interest in the Company through direct purchase of the Company’s class B common stock shares at
prices established by the Board of Directors or through grants of class B restricted common stock shares with
performance based vesting. The Company has the sole authority to designate either stock purchases or grants of
restricted shares. The total number of shares authorized under the EIP is 15,000,000 and the grant terminates at the
end of ten years.
The Company has issued restricted shares as part of the Company’s EIP. The restricted shares have been
granted in groups of four shares. Participants do not have the unrestricted rights of stockholders until those shares
vest. The shares may vest upon a liquidity event, with the number of shares vested based upon a participant’s
number of years of service to the Company, the portion of the investment by Onex and its affiliates liquidated
through the date of the liquidity event and the return on invested capital by Onex and its affiliates through the date of
the liquidity event. If a specific type of liquidity event has not occurred by the 10th year, shares may vest based on a
valuation of the Company. The Company’s initial public offering in November 2006 (the “IPO”) and secondary
offering in May 2007 were considered liquidity events under the EIP. The Company records expenses equal to the
fair value of the award over a five year vesting period. The fair value of the award is based on the value of each share
at the time of the grant multiplied by the probability of the share vesting based on historical performance of Onex’s
controlled investments.
The Company expensed $2.0, which was offset by $0.2 expense reduction resulting from stock forfeitures for
the year ended December 31, 2010. The Company expensed a net total of $2.3 and $9.3 for the periods ended
December 31, 2009 and December 31, 2008, respectively. The Company’s unamortized stock compensation related
to these restricted shares is less than $0.1. The weighted average remaining period of compensation cost not yet
recognized is 0.5 years. The weighted average remaining period for the vesting of these shares is 4.5 years. The
intrinsic value of the unvested shares based on the value of the Company’s stock at December 31, 2010 was $43.1,
based on the value of the Company’s stock and the number of unvested shares.
Due to the occurrence during 2010 of the four or five-year anniversaries of the Executive Incentive Plan grant
dates for certain participants in the plan, those participants acquired an incremental 8.81% or 20% interest,
respectively, in the shares granted to them under the plan, such that their total cumulative interest in the shares
granted to them would be 80% for those participants reaching their fourth anniversary and 100% for those reaching
their fifth anniversary. The total number of additional shares in which an interest was acquired during 2010 was
1,249,402. The participants have a non-forfeitable interest in those shares; however, as per the plan document, the
shares are still restricted until the earlier of a liquidity event or June 16, 2015. Participants do not have the
unrestricted rights of stockholders until those shares vest. Participants who have not yet acquired a 100%
cumulative interest in their shares will do so during 2011 provided they continue to be employed by the Company
when they reach their five-year anniversary in 2011.
107
The following table summarizes the activity of restricted shares under the EIP for the periods ended
December 31, 2008, December 31, 2009 and December 31, 2010:
Shares
(Thousands)
Value(1)
Executive Incentive Plan
Nonvested at December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,469
(108)
$28.0
(0.6)
2,361
(280)
27.4
(3.8)
2,081
(8)
23.6
(0.2)
2,073
$23.4
(1) Value represents grant date fair value.
Board of Directors Stock Awards
This plan provides non-employee directors the opportunity to receive grants of restricted shares of class A
common stock, or Restricted Stock Units (RSUs) or a combination of both common stock and RSUs. The class A
common stock grants and RSU grants vest one year from the grant date. The RSU grants are payable upon the
Director’s separation from service. The Board of Directors or its authorized committee may make discretionary
grants of shares or RSUs from time to time. The maximum aggregate number of shares that may be granted to
participants is 3,000,000 shares. In April 2008, the Director Stock Plan was amended such that all issuance of stock
pursuant to the plan after that date would be grants of class A common stock or RSUs. All shares granted prior to
April 2008 were class B common stock.
For each non-employee Director of the Company, at least one-half of their annual director compensation is
required to be paid in the form of a grant of class A common stock and/or RSUs, as elected by each Director. In
addition, each Director may elect to have all or any portion of the remainder of their annual director compensation
paid in cash or in the form of a grant of class A stock and/or RSUs. If participants cease to serve as Directors within a
year of the grant, the restricted shares and/or RSUs are forfeited. In May 2010, the Board of Directors authorized a
grant to its members of 33,002 shares of restricted class A common stock valued at $0.7 based on the share price of
the Company’s common stock at the grant date. The Company expensed $0.7 for the Board of Directors shares for
each of the periods ended December 31, 2010 and December 31, 2009, and $0.4 during the period ended
December 31, 2008. The Company’s unamortized stock compensation related to these restricted shares is $0.2
which will be recognized over a weighted average remaining period of 4 months. The intrinsic value of the unvested
shares based on the value of the Company’s stock at December 31, 2010 was $0.7, based on the value of the
Company’s stock and the number of unvested shares.
108
The following table summarizes stock and RSU grants to members of the Company’s Board of Directors for
the periods ended December 31, 2008, December 31, 2009 and December 31, 2010:
Shares
Class A
Class B
(Thousands)
Value(1)
Class A
Class B
Board of Directors Stock Grants
Nonvested at December 31, 2007 . . . . . . . . . . . . . . . . . . . . . .
Granted during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
21
—
—
—
—
—
—
21
56
(21)
—
—
—
—
—
0.6
0.7
(0.6)
—
—
—
—
—
56
33
(56)
—
—
—
—
—
0.7
0.7
(0.7)
—
—
—
—
—
33
—
$ —
0.6
—
—
$ 0.7
$—
—
—
—
$—
Short-Term Incentive Plan
The Amended and Restated Short-Term Incentive Plan (the “Short-Term Incentive Plan”) enables eligible
employees to receive incentive benefits in the form of restricted stock in the Company, cash, or both, as determined
by the Board of Directors or its authorized committee. The stock portion vests one year from the date of grant.
Restricted shares are forfeited if the employee’s employment terminates prior to vesting.
No shares were granted or cash awarded under the Short-Term Incentive Plan for 2009 performance. As a
result, there were no unvested shares for this plan as of December 31, 2010. In the first quarter of 2010, the Company
recognized $0.4 of expense related to the shares granted under the Short-Term Incentive Plan for 2008 performance,
which fully vested twelve months from the 2009 grant date. The Company expensed $3.3 for the twelve months
ended December 31, 2009 for unvested shares granted prior to that date and $4.3 for the twelve months ended
December 31, 2008 for unvested shares granted prior to that date. The 2008 cash award of $3.5 was expensed in
2008 and paid in 2009 and the 2007 cash award of $3.9 was expensed in 2007 and paid in 2008.
109
The following table summarizes the activity of the restricted shares under the Short-Term Incentive Plan for
the twelve months ended December 31, 2008, December 31, 2009 and December 31, 2010:
Shares
(Thousands)
Value(1)
Short-Term Incentive Plan
Granted during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
232
150
(231)
(11)
$ 7.0
4.2
(7.0)
(0.3)
140
309
(140)
(31)
3.9
3.5
(3.9)
(0.3)
278
—
(278)
—
3.2
—
(3.2)
—
—
$ —
Long-Term Incentive Plan
The Second Amended and Restated Long-Term Incentive Plan (“LTIP”) is designed to encourage retention of
key employees.
For shares granted in 2007, one-half of the granted restricted shares of class B common stock vested on the
second anniversary of the grant date in February 2009, and the other one-half will vest on the fourth anniversary of
the grant date in 2011. Restricted shares are forfeited if the participant’s employment terminates prior to vesting. In
the first quarter of 2007, 67,391 shares valued at $2.0 were granted. The Company expensed $0.4 for each of the
periods ended December 31, 2010, December 31, 2009 and December 31, 2008. The Company’s unamortized stock
compensation related to these unvested class B shares is $0.1 which will be recognized over a weighted average
remaining period of 1.5 months. The intrinsic value of the unvested class B LTIP shares at December 31, 2010 was
$0.6, based on the value of the Company’s common stock and the number of unvested shares.
In May 2010, 560,880 class A shares valued at $12.1 were granted and will vest annually in three equal
installments beginning on the two-year anniversary of the grant date. In May 2009, 852,294 class A shares valued at
$11.0 were granted and will vest annually in three equal installments beginning on the two-year anniversary of the
grant date. Within the May 2008 LTIP grant there were three groups of awards, each with a unique vesting schedule.
The first group of shares vests equally over three years, beginning in 2009. The second and third groups also vest in
one-third increments, but vesting begins on the second and third anniversary of the grant, respectively.
During 2010, 862,800 shares of class A common stock with a value of $17.6 were granted to members of the
IAM union under the LTIP pursuant to the new ten-year labor contract. Also during 2010, 144,400 shares of class A
common stock with a value of $3.0 were granted to members of the UAW union under the LTIP pursuant to the new
ten-year labor contract. The shares vested immediately and the value was charged directly to cost of sales.
110
The Company expensed a total of $25.5 for the unvested class A LTIP shares in the twelve months ended
December 31, 2010, net of $1.0 of forfeited shares. The Company expensed a net total of $3.5 and $1.3 for class A
LTIP shares for the periods ended December 31, 2009 and December 31, 2008, respectively.
The Company’s unamortized stock compensation related to these unvested class A shares is $17.1 which will
be recognized over a weighted average remaining period of 2.8 years. The intrinsic value of the unvested class A
LTIP shares at December 31, 2010 was $15.8, based on the value of the Company’s common stock and the number
of unvested shares.
The following table summarizes the activity of the restricted shares under the LTIP for the periods ended
December 31, 2008, December 31, 2009 and December 31, 2010:
Shares
Class A
Class B
(Thousands)
Long-Term Incentive Plan
—
328
—
(6)
62
—
—
(4)
322
852
(6)
(71)
Value(1)
Class A
Class B
$
—
9.4
—
(0.2)
$ 1.8
—
—
(0.1)
58
—
(29)
(1)
9.2
11.0
(0.1)
(1.3)
1.7
—
(0.9)
—
1,097
1,568
(1,030)
(145)
28
—
—
—
18.8
32.6
(21.1)
(2.7)
0.8
—
—
—
1,490
28
$ 27.6
$ 0.8
Dividends on Restricted Share Grants
Spirit does not currently have plans to pay dividends in the foreseeable future. However, any dividends
declared by Holdings’ Board of Directors with respect to common shares and with respect to any restricted share
grants under any of the Company’s compensation plans will be cumulative and paid to the participants only at the
time and to the extent the participant acquires an interest in, or vests, in any of the restricted shares.
15.
Income Taxes
The following summarizes pretax income:
2010
2009
2008
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $276.8
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.0
$255.6
17.2
$374.4
9.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $297.8
$272.8
$383.9
111
The tax provision contains the following components:
2010
2009
2008
$28.4
1.1
0.6
$47.7
2.4
1.3
$118.4
0.1
0.2
.......................................
$30.1
$51.4
$118.7
.......................................
.......................................
.......................................
$54.3
(8.2)
2.0
$26.2
(0.7)
4.0
$ (6.1)
3.3
2.6
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48.1
29.5
Total tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$78.2
$80.9
Current
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current . . . . . . .
Deferred
Federal . . . . . . . . . . .
State . . . . . . . . . . . .
Foreign . . . . . . . . . .
(0.2)
$118.5
The income tax provision from operations differs from the tax provision computed at the U.S. federal statutory
income tax rate due to the following:
2010
2009
2008
Tax at U.S. Federal statutory rate . . . . . . . . . . .
State income taxes, net of Federal benefit . . . . .
Foreign rate differences . . . . . . . . . . . . . . . . . .
Research and Experimentation Credit . . . . . . . .
Domestic Production Activities Deduction. . . . .
Interest on assessments . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$104.2
(4.6)
(4.3)
(10.3)
(4.0)
(1.2)
(1.6)
35.0% $ 95.5
(1.5)
1.0
(1.5)
(1.3)
(3.5)
(12.0)
(1.3)
(3.9)
(0.4)
0.8
(0.5)
0.8
35.0% $134.4
0.4
2.3
(0.5)
(1.2)
(4.4)
(10.3)
(1.4)
(8.1)
0.3
1.0
0.3
0.4
35.0%
0.6
(0.3)
(2.7)
(2.1)
0.3
0.1
Total provision for income taxes . . . . . . . . . . . .
$ 78.2
26.3% $ 80.9
29.7% $118.5
30.9%
112
Significant tax effected temporary differences comprising the net deferred tax asset are as follows:
2010
Long-term contracts . . . . . . . . . . . . . . . . . . . . .
Post-retirement benefits other than pensions . . . .
Pension and other employee benefit plans . . . . .
Employee compensation accruals . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest swap contracts . . . . . . . . . . . . . . . . . . .
State income tax credits . . . . . . . . . . . . . . . . . .
Accruals and reserves . . . . . . . . . . . . . . . . . . . .
Deferred production . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforward . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . $ 70.4
.........................
27.3
.........................
(39.6)
.........................
38.3
.........................
(60.5)
.........................
1.4
.........................
2.5
.........................
41.0
.........................
11.7
.........................
—
.........................
8.3
.........................
(1.0)
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
99.8
(5.3)
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 94.5
2009
$118.0
23.5
(53.3)
32.7
(22.5)
7.2
6.3
26.3
4.1
(15.7)
11.3
(1.9)
136.0
—
$136.0
Deferred tax detail above is included in the consolidated balance sheet and supplemental information as
follows:
2010
2009
Current deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $47.6
Current deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
$ 55.8
—
Net current deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $47.6
$ 55.8
Non-current deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55.0
(8.1)
95.8
(15.6)
Net non-current deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $46.9
$ 80.2
Total deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $94.5
$136.0
The decrease in Long-term contracts deferred tax asset and increase in the depreciation and amortization
deferred tax liability are primarily due to recently enacted bonus depreciation rules.
We have recognized cumulative book income for our international operations, but have incurred cumulative
taxable losses in the United Kingdom. The resulting net operating loss carryforward is primarily due to the manner
in which the United Kingdom treats long-term contract income accounting and capital allowances.
As required under FASB authoritative guidance, $5.0 and zero was recorded to Additional Paid in Capital,
representing the tax effect associated with the net excess tax pool created during 2010 and 2009, respectively.
In accordance with FASB authoritative guidance relating to Accounting for Income Taxes, management has
maintained a permanent reinvestment strategy for the Company’s foreign operations. As such, deferred taxes have
not been provided on unremitted earnings for our U.K., Germany, Malaysia, Singapore, Canada, and France
subsidiaries. These unremitted earnings would have an immaterial impact, if any, on the financial statements, if
repatriated.
113
The beginning and ending unrecognized tax benefits reconciliation is as follows:
2010
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross increases related to current period tax positions . . . . .
Gross decreases related to prior period tax positions . . . . . .
Statute of limitations’ expiration . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . $ 23.2
.........
9.4
. . . . . . . . . (16.2)
.........
(1.2)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15.2
2009
2008
$27.7
1.9
(6.3)
(0.1)
$26.7
6.6
(5.6)
—
$23.2
$27.7
Included in the December 31, 2010 balance were $4.6 in tax effected unrecognized tax benefits which, if
ultimately recognized, will reduce the Company’s effective tax rate. Our 2008 and 2009 U.S. federal income tax returns
are currently being examined. While a change could result from the ongoing examination, we reasonably expect no
material change to our current positions in our recorded unrecognized tax benefit liability in the next twelve months.
Our U.S. federal income tax returns for the 2007-2010 tax years are subject to examination. We are also subject
to examination in states and foreign jurisdictions for the 2007-2010 tax years.
We report interest and penalties, if any, related to unrecognized tax benefits in the income tax provision. As of
December 31, 2010 and December 31, 2009, accrued interest on our unrecognized tax benefit liability included in
the Consolidated Balance Sheets was $0.7 and $2.8, respectively. The impact of interest on our unrecognized tax
benefit liability during 2010 and 2009 was $(1.2) and $0.8, respectively.
We operate under a tax holiday in Malaysia that is effective through September 2024, conditional on meeting
certain employment and investment thresholds. This tax holiday decreased foreign tax by $2.5 and increased net
income $0.02 per fully diluted share in 2010.
At December 31, 2010, we had $30.7 in United Kingdom net operating loss carryforwards that do not expire
and $0.7 in North Carolina net operating loss carryforwards that expire in 2025.
Included in the deferred tax assets at December 31, 2010 are $27.0 in Kansas High Performance Incentive
Program (“HPIP”) Credit, $12.8 in Kansas Research & Development Credit (“R&D”), and $4.9 in Kansas Business
and Jobs Development Credit totaling $44.7 in Kansas state income tax credit carryforwards. The HPIP Credit
provides a 10% investment tax credit for qualified business facilities located in Kansas for which $3.4 expires in
2016, $14.2 expires in 2017, $5.0 expires in 2018, and the remainder expires in 2019. The R&D Credit provides a
credit for qualified research and development expenditures conducted within Kansas. This credit can be carried
forward indefinitely. The Business and Jobs Development Credit provides a tax credit for increased employment in
Kansas. This credit can be carried forward indefinitely. It is management’s opinion that all Kansas state income tax
credits carried forward will be utilized before they expire.
Included in the deferred tax assets at December 31, 2010 are $10.3 in North Carolina Investing in Business
Property Credit, $5.5 in North Carolina Investment in Real Property Credit, and $2.6 in North Carolina Creating
Jobs Credit totaling $18.4 in North Carolina state income tax credit carryforwards. The Investing in Business
Property Credit provides a 7% investment tax credit for property located in a North Carolina development area and
the Investment in Real Property Credit provides a 30% investment tax credit for real property located in a
North Carolina development area. The Creating Jobs Credit provides a tax credit for increased employment in
North Carolina. These North Carolina state income tax credits can be carried forward 20 years. It is management’s
opinion that $10.2 of these North Carolina state income tax credits will be utilized before they expire and an
$8.2 gross valuation allowance was recorded.
114
16.
Equity
Earnings per Share Calculation
Basic earnings per share represents the income available to common shareholders divided by the weighted
average number of common shares outstanding during the measurement period. Diluted earnings per share
represents the income available to common shareholders divided by the weighted average number of common
shares outstanding during the measurement period while also giving effect to all potentially dilutive common shares
that were outstanding during the period.
Subject to preferences that may apply to shares of preferred stock outstanding at the time, holders of the
Company’s outstanding common stock are entitled to any dividend declared by the Board of Directors out of funds
legally available for this purpose. No dividend may be declared on the class A or class B common stock unless at the
same time an equal dividend is paid on every share of class A and class B common stock. Dividends paid in shares of
the Company’s common stock must be paid, with respect to a particular class of common stock, in shares of that
class. The Company does not intend to pay cash dividends on its common stock. In addition, the terms of the
Company’s current financing agreements preclude it from paying any cash dividends on its common stock.
In June 2008, the FASB issued authoritative guidance determining whether instruments granted in sharedbased payment transactions are participating securities. Under the FASB guidance, unvested share-based payment
awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings per share pursuant to the two-class
method. The two-class method is an earnings allocation formula that treats a participating security as having rights
to undistributed earnings that would otherwise have been available to common shareholders. The Company’s
service-based restricted stock awards contain non-forfeitable rights to dividends and are considered participating
securities. Upon adoption of this standard, the service-based restricted stock awards were included in the calculation
of earnings per share using the two-class method for the twelve month periods ended December 31, 2010,
December 31, 2009 and December 31, 2008.
The following table sets forth the computation of basic and diluted earnings per share:
December 31, 2010
Per Share
Income Shares
Amount
Basic EPS
Income available to common
shareholders. . . . . . . . . . . . $215.8
Income allocated to
participating securities . . . .
3.1
137.9
$1.56
2.0
Net Income . . . . . . . . . . . . $218.9
Diluted potential common
shares . . . . . . . . . . . . . . . .
Diluted EPS
Net Income . . . . . . . . . . . . . . $218.9
December 31, 2009
Per Share
Income Shares
Amount
December 31, 2008
Per Share
Income Shares
Amount
$190.1
137.2
$263.9
137.0
1.6
1.1
1.5
0.8
$1.39
$191.7
1.1
141.0
$265.4
1.5
$1.55
$191.7
$1.93
139.8
1.4
$1.37
$265.4
139.2
$1.91
The balance of outstanding common shares presented in the consolidated statement of shareholders’ equity
was 142.1 million, 140.7 million, and 139.9 million at December 31, 2010, December 31, 2009 and December 31,
2008, respectively. Included in the outstanding common shares were 2.9 million, 3.5 million and 2.9 million of
issued but unvested shares at December 31, 2010, December 31, 2009 and December 31, 2008, respectively, which
are excluded from the basic EPS calculation.
115
Comprehensive Income
Components of comprehensive income, net of tax, consist of the following:
December 31,
December 31,
December 31,
2010
2009
2008
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive Income (loss), net of tax
Unrealized gain (loss) on investments
Unrealized gain (loss) on interest rate swaps, net of
tax(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension, SERP, and Retiree Medical adjustments,
net of tax(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on foreign currency forward
contracts, net of tax(3) . . . . . . . . . . . . . . . . . . . .
Reclassification of realized (gain) loss on hedging
instruments into net income, net of tax(4) . . . . . . . .
Unrealized gain (loss) on intercompany loan(5) . . . . .
Foreign currency translation adjustments. . . . . . . . . . .
$218.9
Total Comprehensive Income . . . . . . . . . . . . . . . . . . . . .
$203.3
$191.7
$ 265.4
(3.0)
(5.7)
(14.0)
(15.5)
55.8
(190.8)
(1.3)
(1.0)
(4.1)
10.2
(2.0)
(4.0)
12.0
5.2
8.2
—
(15.6)
(27.4)
$266.2
$ 13.5
(1) Net of $1.8, $3.5 and $8.6 tax benefit for the twelve months ended December 31, 2010, December 31, 2009 and
(2) Net of $9.5 tax benefit for the twelve months ended December 31, 2010, $35.1 tax expense for the twelve
months ended December 31, 2009, and $117.1 tax benefit for the twelve months ended December 31, 2008.
(3) Net of $0.5, $0.4 and $1.6 tax benefit for the twelve months ended December 31, 2010, December 31, 2009, and
(4) Net of $5.9 and $6.8 tax effect for the twelve months December 31, 2010, and December 31, 2009, respectively.
(5) Net of $0.8 tax benefit for the twelve months ended December 31, 2010, $2.0 tax expense for the twelve months
ended December 31, 2009, and $6.1 tax benefit for the twelve months ended December 31, 2008, due to the
revaluation of a long-term intercompany loan, which is denominated in a currency other than the entity’s
functional currency.
Noncontrolling Interest
Noncontrolling interest at December 31, 2010 remained unchanged from the prior year at $0.5.
17.
Related Party Transactions
On March 26, 2007, Hawker Beechcraft, Inc. (“Hawker”), of which Onex Partners II LP (an affiliate of Onex)
owns approximately a 49% interest, acquired Raytheon Aircraft Acquisition Company and substantially all of the
assets of Raytheon Aircraft Services Limited. The Company’s Prestwick facility provides wing components for the
Hawker 800 Series manufactured by Hawker. For the twelve months ended December 31, 2010, December 31,
2009, and December 31, 2008, sales to Hawker were $6.7, $12.0, and $27.7, respectively.
116
A former member of Holdings’ Board of Directors, who resigned from such position effective October 26,
2010, was also a member of the Board of Directors of Hawker.
Prior to his departure from the Company in December 2009, a former executive of the Company was a member
of the Board of Directors of one of the Company’s suppliers, Precision Castparts Corp. of Portland, Oregon, a
manufacturer of complex metal components and products. For the twelve months ended December 31, 2009 the
Company purchased $48.3 of products from this supplier.
A member of Holdings’ Board of Directors served as Chairman, President, and Chief Executive Officer of
Aviall, Inc., the parent company of one of our customers, Aviall Services, Inc. and a wholly-owned subsidiary of
Boeing until his retirement in February 2010. On September 18, 2006, Spirit entered into a distribution agreement
with Aviall Services, Inc. that extends until September 18, 2011 and automatically renews on an annual basis unless
terminated by either party. Net revenues under the distribution agreement were $4.0, $2.8 and $5.6 for the twelve
months ended December 31, 2010, December 31, 2009 and December 31, 2008, respectively. Receivables due from
Aviall were $1.2 as of December 31, 2010.
The Company paid $0.3, $0.2, and $0.3 to a subsidiary of Onex for services rendered for each of the twelve
month periods ended December 31, 2010, December 31, 2009, and December 31, 2008, respectively. Management
believes the amounts charged were reasonable in relation to the services provided.
Boeing owned and operated significant information technology systems utilized by the Company and, as
required under the acquisition agreement for the Boeing Acquisition, was providing those systems and support
services to Spirit under a Transition Services Agreement. The services covered by the Transition Services Agreement
have now been established by the Company, and the agreement terminated. Under the Transition Services Agreement,
the Company incurred fees of less than $0.1, $13.7 and $20.3 for the twelve months ended December 31, 2010,
December 31, 2009 and December 31, 2008, respectively. The amounts owed to Boeing and recorded as accrued
liabilities were less than $0.1 and $7.9 at December 31, 2010 and December 31, 2009, respectively.
The spouse of one of the Company’s executives is a special counsel at a law firm utilized by the Company and
at which the executive was previously employed. The Company paid fees of $1.3, $1.9, and $2.0 to the firm for the
periods ended December 31, 2010, December 31, 2009, and December 31, 2008, respectively.
An executive of the Company is a member of the Board of Directors of a Wichita, Kansas bank that provides
banking services to Spirit. In connection with the banking services provided to Spirit, the Company pays fees
consistent with commercial terms that would be available to unrelated third parties. Such fees are not material to Spirit.
18.
Commitments, Contingencies and Guarantees
Litigation
From time to time we are subject to, and are presently involved in, litigation or other legal proceedings arising
in the ordinary course of business. While the final outcome of these matters cannot be predicted with certainty,
considering, among other things, the meritorious legal defenses available, it is the opinion of the Company that none
of these items, when finally resolved, will have a material adverse effect on the Company’s long-term financial
position or liquidity. Consistent with the requirements of authoritative guidance on accounting for contingencies,
we had no accruals at December 31, 2010 or December 31, 2009 for loss contingencies. However, an unexpected
adverse resolution of one or more of these items could have a material adverse effect on the results of operations in a
particular quarter or fiscal year.
From time to time, in the ordinary course of business and like others in the industry, we receive requests for
information from government agencies in connection with their regulatory or investigational authority. Such
requests can include subpoenas or demand letters for documents to assist the government in audits or investigations.
We review such requests and notices and take appropriate action. We have been subject to certain requests for
117
information and investigations in the past and could be subject to such requests for information and investigations in
the future. Additionally, we are subject to federal and state requirements for protection of the environment,
including those for disposal of hazardous waste and remediation of contaminated sites. As a result, we are required
to participate in certain government investigations regarding environmental remediation actions.
In December 2005, a lawsuit was filed against Spirit, Onex, and Boeing alleging age discrimination in the hiring of
employees by Spirit when Boeing sold its Wichita commercial division to Onex. The complaint was filed in U.S. District
Court in Wichita, Kansas and seeks class-action status, an unspecified amount of compensatory damages and more than
$1.5 billion in punitive damages. The asset purchase agreement from the Boeing Acquisition requires Spirit to indemnify
Boeing for damages resulting from the employment decisions that were made by us with respect to former employees of
Boeing Wichita, which relate or allegedly relate to the involvement of, or consultation with, employees of Boeing in such
employment decisions. On June 30, 2010, the U.S. District Court granted defendants’ dispositive motions, finding that
the case should not be allowed to proceed as a class action. The plaintiffs have asked the Court to reconsider its ruling but
the Court has not yet ruled on that motion. Depending on the nature of that ruling, some of the plaintiffs could possibly
pursue individual claims or, could decide to appeal the District Court’s decision to the United States Court of Appeals for
the Tenth Circuit, which could reverse the District Court’s June 30 ruling. The Company intends to continue to
vigorously defend itself in this matter. Management believes the resolution of this matter will not materially affect the
In December 2005, a federal grand jury sitting in Topeka, Kansas issued subpoenas regarding the vapor degreasing
equipment at our Wichita, Kansas facility. The government’s investigation appeared to focus on whether the degreasers
were operating within permit parameters and whether chemical wastes from the degreasers were disposed of properly.
The subpoenas covered a time period both before and after our purchase of the Wichita, Kansas facility. Subpoenas
were issued to Boeing, Spirit and individuals who were employed by Boeing prior to the Boeing Acquisition, but are
now employed by Spirit. The Company responded to the subpoena and provided additional information to the
government as requested. On March 25, 2008, the U.S. Attorney’s Office informed the Company that it was closing its
criminal file on the investigation. A civil investigation into this matter is ongoing. Management believes the resolution
of this matter will not materially affect the Company’s financial position, results of operations or liquidity.
On February 16, 2007, an action entitled Harkness et al. v. The Boeing Company et al. was filed in the U.S. District
Court for the District of Kansas. The defendants were served in early July 2007. The defendants include Spirit
AeroSystems Holdings, Inc., Spirit AeroSystems, Inc., the Spirit AeroSystems Holdings Inc. Retirement Plan for the
International Brotherhood of Electrical Workers (IBEW), Wichita Engineering Unit (SPEEA WEU) and Wichita
Technical and Professional Unit (SPEEA WTPU) Employees, and the Spirit AeroSystems Retirement Plan for
International Association of Machinists and Aerospace Workers (IAM) Employees, along with Boeing and Boeing
retirement and health plan entities. The named plaintiffs are twelve former Boeing employees, eight of whom were or are
employees of Spirit. The plaintiffs assert several claims under the Employee Retirement Income Security Act and general
contract law and brought the case as a class action on behalf of similarly situated individuals. The putative class consists
of approximately 2,500 current or former employees of Spirit. The parties agreed to class certification and are currently
in the discovery process. The sub-class members who have asserted claims against the Spirit entities are those individuals
who, as of June 2005, were employed by Boeing in Wichita, Kansas, were participants in the Boeing pension plan, had at
least 10 years of vesting service in the Boeing plan, were in jobs represented by a union, were between the ages of 49 and
55, and who went to work for Spirit on or about June 17, 2005. Although there are many claims in the suit, the plaintiffs’
claims against the Spirit entities, asserted under various theories, are (1) that the Spirit plans wrongfully failed to
determine that certain plaintiffs are entitled to early retirement “bridging rights” to pension and retiree medical benefits
that were allegedly triggered by their separation from employment by Boeing and (2) that the plaintiffs’ pension benefits
were unlawfully transferred from Boeing to Spirit in that their claimed early retirement “bridging rights” are not being
afforded these individuals as a result of their separation from Boeing, thereby decreasing their benefits. The plaintiffs
seek a declaration that they are entitled to the early retirement pension benefits and retiree medical benefits, an injunction
ordering that the defendants provide the benefits, damages pursuant to breach of contract claims and attorney fees.
118
Boeing has notified Spirit that it believes it is entitled to indemnification from Spirit for any “indemnifiable damages” it
may incur in the Harkness litigation, under the terms of the asset purchase agreement from the Boeing Acquisition. Spirit
disputes Boeing’s position on indemnity. Management believes the resolution of this matter will not materially affect the
On July 21, 2005, the UAW filed a grievance against Boeing on behalf of certain former Boeing employees in
Tulsa and McAlester, Oklahoma, regarding issues that parallel those asserted in Harkness et al. v. The Boeing
Company et al. Boeing denied the grievance, and the UAW subsequently filed suit to compel arbitration, which the
parties eventually agreed to pursue. The arbitration was conducted in January 2008. In July 2008, the arbitrator
issued an opinion and award in favor of the UAW. The arbitrator directed Boeing to reinstate the seniority of the
employees and “afford them the benefits appurtenant thereto.” On March 5, 2009, the arbitrator entered an Opinion
and Supplemental Award that directed Boeing to award certain benefits to UAW members upon whose behalf the
grievance was brought, notwithstanding the prior denial of such benefits by the Boeing Plan Administrator. On
April 10, 2009, Boeing filed a complaint in the United States District Court for the Northern District of Illinois,
seeking a ruling that the arbitrator exceeded his authority in granting the Supplemental Award. On September 16,
2009, the District Court entered an order affirming the arbitrator’s Supplemental Award. Boeing appealed the
District Court’s decision to the U.S. Seventh Circuit Court of Appeals, which recently affirmed the District Court’s
decision. Boeing previously notified Spirit of its intent to seek indemnification from Spirit for any “indemnifiable
damages” it may incur in the UAW matter, pursuant to the terms of the asset purchase agreement from the Boeing
Acquisition. Spirit disputes Boeing’s position on indemnity. Management believes the resolution of this matter will
not materially affect the Company’s financial position, results of operations or liquidity.
On May 11, 2009, Spirit filed a lawsuit in the United States District Court for the District of Kansas against
SPS Technologies LLC (“SPS”), and Precision Castparts Corp. Spirit’s claims are based on the sale by SPS of
certain non-conforming nut plate fasteners to Spirit between August 2007 and August 2008. Many of the fasteners
were used on assemblies that Spirit sold to a customer. In the fall of 2008, Spirit discovered the non-conformity and
notified the customer of the discrepancy. Subsequently, Spirit and the customer removed and replaced nut plates on
various in-process aircraft assemblies. Spirit’s lawsuit seeks damages, including damages related to these efforts,
under various theories, including breach of contract and breach of implied warranty.
Commitments
The Company leases equipment and facilities under various non-cancelable capital and operating leases. The
capital leasing arrangements extend through 2025. Minimum future lease payments under these leases at
December 31, 2010 are as follows:
Capital
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating
Present
Value
Interest
Total
$13.4
$12.2
$11.3
$ 5.4
$ 4.2
$16.8
$ 1.9
$ 1.9
$ 1.7
$ 0.8
$ 0.8
$10.1
$0.5
$0.4
$0.3
$0.3
$0.3
$1.5
$ 2.4
$ 2.3
$ 2.0
$ 1.1
$ 1.1
$11.6
Spirit’s aggregate capital commitments totaled $219.6 and $143.1 at December 31, 2010 and December 31,
2009, respectively.
The Company paid $0.2 and less than $0.1 in interest expense related to the capital leases for the periods
ending December 31, 2010 and December 31, 2009, respectively.
119
Service and Product Warranties and Extraordinary Rework
The Company provides service and warranty policies on its products. Liability under service and warranty policies
is based upon specific claims and a review of historical warranty and service claim experience. Adjustments are made to
accruals as claim data and historical experience change. In addition, the Company incurs discretionary costs to service its
products in connection with product performance or quality issues. The service and product warranty/extraordinary
rework reserve was $18.7 and $13.1 at December 31, 2010 and December 31, 2009, respectively.
Guarantees
Contingent liabilities in the form of letters of credit, letters of guarantee and performance bonds have been
provided by the Company. These letters of credit reduce the amount of borrowings available under the revolving
credit facility. As of December 31, 2010 and December 31, 2009, outstanding letters of credit were $18.9 and $16.9,
respectively, and outstanding guarantees were $23.1 and $16.1, respectively.
Indemnification
The Company has entered into indemnification agreements with each of its directors, and some of its executive
employment agreements include indemnification provisions. Under those agreements, the Company agrees to
indemnify each of these individuals against claims arising out of events or occurrences related to that individual’s
service as the Company’s agent or the agent of any of its subsidiaries to the fullest extent legally permitted.
Bonds
Spirit utilized City of Wichita issued Industrial Revenue Bonds (“IRBs”) to finance self constructed and
purchased real and personal property at the Wichita site. Tax benefits associated with IRBs include provisions for a
ten-year complete property tax abatement and a Kansas Department of Revenue sales tax exemption on all IRB
funded purchases. Spirit and the Predecessor purchased these IRBs so they are bondholders and debtor / lessee for
the property purchased with the IRB proceeds.
Spirit recorded the property on its Consolidated Balance Sheet in accordance with FASB authoritative guidance,
along with a capital lease obligation to repay the IRB proceeds. Therefore, Spirit and the Predecessor have exercised
their right to offset the amounts invested and obligations for these bonds on a consolidated basis. At December 31,
2010 and 2009, the assets and liabilities associated with these IRBs were $271.2 and $263.7, respectively.
Spirit utilized $80.0 in Kansas Development Finance Authority (“KDFA”) issued bonds to receive a rebate of
payroll taxes from the Kansas Department of Revenue to KDFA bondholders. Concurrently, a Spirit subsidiary issued an
intercompany note with identical principal, terms, and conditions to the KDFA bonds. In accordance with FASB
authoritative guidance, the principal and interest payments on these bonds offset in the consolidated financial statements.
19.
Other Income (Expense), Net
Other income (expense), net, is summarized as follows:
December 31,
2010
For the Twelve
Months Ended
December 31,
2009
December 31,
2008
KDFA bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental and miscellaneous income . . . . . . . . . . . . . . . . . .
Foreign currency gains (losses) . . . . . . . . . . . . . . . . . . .
$ 4.0
0.6
(5.0)
$3.5
0.3
2.3
$ 3.5
0.6
(5.3)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(0.4)
$6.1
$(1.2)
120
Foreign currency gains (losses) are due to the impact of movement in foreign currency exchange rates on trade
and intercompany receivables/payables and other long-term contractual rights/obligations denominated in a
currency other than the entity’s functional currency.
20.
Significant Concentrations of Risk
Economic Dependence
The Company’s largest customer (Boeing) accounted for approximately 83%, 85%, and 85% of the revenues
for the periods ending December 31, 2010, December 31, 2009, and December 31, 2008, respectively. Approximately 35% and 40% of the Company’s accounts receivable balance at December 31, 2010 and December 31,
2009, respectively, was attributable to Boeing.
The Company’s second largest customer (Airbus) accounted for approximately 11% of the revenues for each
of the periods ending December 31, 2010, December 31, 2009, and December 31, 2008. Approximately 27% and
39% of the Company’s accounts receivable balance at December 31, 2010 and December 31, 2009, respectively,
was attributable to Airbus.
21.
Supplemental Balance Sheet Information
Accrued expenses and other liabilities consist of the following:
December 31,
2010
December 31,
2009
...........
...........
...........
...........
...........
...........
...........
$ 31.0
96.6
12.2
6.2
6.4
4.5
33.8
$ 23.0
94.1
8.2
5.4
5.8
—
25.4
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$190.7
$161.9
Other liabilities
Federal income taxes, non-current. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty/extraordinary rework reserve — non-current . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 14.7
14.2
16.9
$ 24.4
13.1
14.6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 45.8
$ 52.1
Accrued expenses
Accrued wages and bonuses . . . . . . . . . . . . . . . . . . . . . .
Accrued fringe benefits . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Workers’ compensation . . . . . . . . . . . . . . . . . . . . . . . . .
Property and sales tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty/extraordinary rework reserve — current . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.
Segment Information
The Company operates in three principal segments: Fuselage Systems, Propulsion Systems and Wing Systems.
Substantially all revenues in the three principal segments are from Boeing, with the exception of Wing Systems,
which includes revenues from Airbus and other customers. Approximately 94% of the Company’s net revenues for
the twelve months ended December 31, 2010 came from our two largest customers, Boeing and Airbus. All other
activities fall within the All Other segment, principally made up of sundry sales of miscellaneous services, tooling
contracts, and sales of natural gas through a tenancy-in-common with other companies that have operations in
Wichita, Kansas. The Company’s primary profitability measure to review a segment’s operating performance is
121
segment operating income before unallocated corporate selling, general and administrative expenses, unallocated
research and development and unallocated cost of sales. Unallocated corporate selling, general and administrative
expenses include centralized functions such as accounting, treasury and human resources that are not specifically
related to our operating segments and are not allocated in measuring the operating segments’ profitability and
performance and operating margins. Unallocated R&D includes research and development efforts that benefit the
company as a whole and are not unique to a specific segment. Unallocated cost of sales is related to the grant of
shares to employees represented by the IAM in connection with the ratification of a new ten-year labor contract on
June 25, 2010, early retirement incentives for employees represented by the IAM who made elections to retire in
2010, and grants of shares to employees represented by the UAW in connection with the ratification of a new tenyear labor contract on December 18, 2010. All of these unallocated items are not specifically related to our
operating segments and are not allocated in measuring the operating segments’ profitability and performance and
operating margins.
The Company’s Fuselage Systems segment includes development, production and marketing of forward, mid
and rear fuselage sections and systems, primarily to aircraft OEMs (OEM refers to aircraft original equipment
manufacturer), as well as related spares and maintenance, repairs and overhaul (MRO). The Fuselage Systems
segment manufactures products at our facilities in Wichita, Kansas and Kinston, North Carolina.
The Company’s Propulsion Systems segment includes development, production and marketing of struts/
pylons, nacelles (including thrust reversers) and related engine structural components primarily to aircraft or engine
OEMs, as well as related spares and MRO services. The Propulsion Systems segment manufactures products at our
facilities in Wichita, Kansas.
The Company’s Wing Systems segment includes development, production and marketing of wings and wing
components (including flight control surfaces) as well as other miscellaneous structural parts primarily to aircraft
OEMs, as well as related spares and MRO services. These activities take place at the Company’s facilities in Tulsa
and McAlester, Oklahoma, Kinston, North Carolina, Prestwick, Scotland, Subang, Malaysia and Kinston, North
Carolina.
The Company’s segments are consistent with the organization and responsibilities of management reporting to
the chief operating decision-maker for the purpose of assessing performance. The Company’s definition of segment
operating income differs from operating income as presented in its primary financial statements and a reconciliation
of the segment and consolidated results is provided in the table set forth below. Most selling, general and
administrative expenses, and all interest expense or income, related financing costs and income tax amounts, are not
allocated to the operating segments.
While some working capital accounts are maintained on a segment basis, much of the Company’s assets are not
managed or maintained on a segment basis. Property, plant and equipment, including tooling, is used in the design
and production of products for each of the segments and, therefore, is not allocated to any individual segment. In
addition, cash, prepaid expenses, other assets and deferred taxes are managed and maintained on a consolidated
basis and generally do not pertain to any particular segment. Raw materials and certain component parts are used in
the production of aerostructures across all segments. Work-in-process inventory is identifiable by segment, but is
managed and evaluated at the program level. As there is no segmentation of the Company’s productive assets,
depreciation expense (included in fixed manufacturing costs and selling, general and administrative expenses) and
capital expenditures, no allocation of these amounts has been made solely for purposes of segment disclosure
requirements.
122
The following table shows segment information:
Segment Revenues
Fuselage Systems. . . . . . . . . . . . . . . . . . . . . . . .
Propulsion Systems . . . . . . . . . . . . . . . . . . . . . .
Wing Systems . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the
Year Ended
December 31,
2010
For the
Year Ended
December 31,
2009
For the
Year Ended
December 31,
2008
$2,035.1
1,061.8
1,067.4
8.1
$2,003.6
1,030.0
1,024.4
20.5
$1,758.4
1,031.7
955.6
26.1
$4,172.4
$4,078.5
$3,771.8
$ 287.6
162.2
99.7
0.3
....
....
....
....
Fuselage Systems. . . . . . . . . . . . . . . . . . . . . . . .
Propulsion Systems . . . . . . . . . . . . . . . . . . . . . .
Wing Systems . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
....
....
....
....
$ 292.3
137.5
101.0
(1.8)
$ 287.6
122.6
20.7
(1.4)
Business Segment Operating Income . . . . . . . . . . .
Unallocated corporate SG&A. . . . . . . . . . . . . . . . .
Unallocated research and development . . . . . . . . . .
Unallocated cost of sales(1) . . . . . . . . . . . . . . . . . .
....
....
....
....
529.0
(139.7)
(3.6)
(28.7)
429.5
(122.7)
(3.5)
—
Total operating income . . . . . . . . . . . . . . . . . . . . . .
$ 357.0
$ 303.3
549.8
(141.7)
(2.4)
—
$ 405.7
contract on June 25, 2010, early retirement incentives for members represented by the IAM who made elections
to retire in 2010, and grants of shares to employees represented by the UAW in connection with the ratification
of a new ten-year labor contract on December 18, 2010.
Although most of the Company’s revenues are obtained from sales inside the U.S., the Company generated
$498.4, $575.9, and $465.4 in sales to international customers for the twelve months ended December 31, 2010,
December 31, 2009, December 31, 2008, respectively, primarily to Airbus. The following chart illustrates the split
between domestic and foreign revenues:
Revenue Source(1)
Year Ended
December 31, 2010
Percent of
Total
Net Revenues
Net Revenues
88%
Year Ended
December 31, 2009
Percent of
Total
Net Revenues
Net Revenues
United States . . . . . .
International
United Kingdom . .
Other . . . . . . . . . .
$3,674.0
400.4
98.0
10
2
385.7
190.2
9
5
413.3
52.1
11
1
Total International . . .
498.4
12
575.9
14
465.4
12
Total Revenues . . . . .
$4,172.4
100%
$3,502.6
$4,078.5
86%
Year Ended
December 31, 2008
Percent of
Total
Net Revenues
Net Revenues
100%
$3,306.4
$3,771.8
(1) Net Revenues are attributable to countries based on destination where goods are delivered.
123
88%
100%
Most of the Company’s long-lived assets are located within the United States. Approximately 6% of our longlived assets based on book value are located in the United Kingdom as part of Spirit Europe with approximately
another 4% of our total long-lived assets located in countries outside the United States and the United Kingdom. The
following chart illustrates the split between domestic and foreign assets:
Asset Location
Year Ended
December 31, 2010
Percent of
Total
Total
Long-Lived Assets
Long-Lived Assets
90%
Year Ended
December 31, 2009
Percent of
Total
Total
Long-Lived Assets
Long-Lived Assets
United States . . . . . . . . .
International
United Kingdom . . . . .
Other . . . . . . . . . . . . .
$1,320.0
87.7
62.3
6
4
79.0
55.4
6
4
Total International. . . . . .
150.0
10
134.4
10
Total Long-Lived
Assets . . . . . . . . . . . . .
$1,470.0
100%
124
$1,144.9
$1,279.3
90%
100%
23.
Quarterly Financial Data (Unaudited)
2010
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share, basic(7). . . . . . . . . . . . . . .
Earnings per share, diluted(7) . . . . . . . . . . . . .
December 31,
2010(1)
Quarter Ended
September 30,
July 1,
2010(2)
2010(3)
$1,071.1
$ 95.9
$ 62.0
$ 0.44
$ 0.44
December 31,
2009(5)
2009
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share, basic(7) . . . . . . . . . . . . . . . . . .
Earnings per share, diluted(7) . . . . . . . . . . . . . . . . .
$1,077.7
$ 84.9
$ 50.0
$ 0.36
$ 0.36
$1,002.0
$ 82.4
$ 46.4
$ 0.33
$ 0.33
$1,056.0
$ 85.7
$ 55.1
$ 0.40
$ 0.39
April 1,
2010
$1,043.3
$ 93.0
$ 55.5
$ 0.40
$ 0.40
Quarter Ended
October 1,
July 2,
2009
2009(5)
April 2,
2009(6)
$1,053.8
$ 131.0
$ 87.3
$ 0.63
$ 0.62
$887.4
$ 97.8
$ 62.7
$ 0.46
$ 0.45
$1,059.6
$ (10.4)
$ (8.3)
$ (0.06)
$ (0.06)
(1) Fourth quarter earnings were reduced by $3.3 related to the award of stock to eligible union employees as part
of the new ten-year agreement with the UAW.
(2) In the third quarter of 2010, cost of sales included the impact of a $6.5 charge for the early retirement incentive
included in the ten-year agreement with the IAM.
(3) Second quarter 2010 earnings included the impact of the $18.9 expense related to the award of stock to eligible
union employees as part of the new ten-year agreement with the IAM.
(4) In the fourth quarter of 2009, the Company updated contract profitability estimates resulting in unfavorable
cumulative catch-up adjustments of $34.5 to reflect, among other things, higher than forecasted costs on
contract blocks completed in December 2009 and higher than expected costs on the Sikorsky CH-53K
program.
(5) The Company incurred unusual charges in the second quarter of 2009, including a $93.0 forward loss charge
for the Gulfstream G250 business jet program, the $10.9 impact of the Cessna Citation Columbus termination,
and the realization of unfavorable cumulative catch-up adjustments totaling $33.0 related to post-strike
production ramp up as a result of the IAM Strike at Boeing, nutplate rework and transition to a new enterprise
resource planning (ERP) system.
(6) The post-IAM Strike impact reduced the Company’s revenue by an estimated $256.1 for the first quarter of
2009, as compared to results consistent with pre-IAM Strike delivery levels, which negatively impacted our
income and cash flows.
(7) Upon adoption of FASB authoritative guidance determining whether instruments granted in share-based
payment transactions are part of participating securities, in the first quarter of 2009, the service-based
restricted stock awards were included in the calculation of earnings per share using the two-class method for
the twelve-month periods ended December 31, 2010 and December 31, 2009.
125
24.
Condensed Consolidating Financial Information
On November 18, 2010, Spirit completed an offering of $300.0 aggregate principal amount of its 2020 Notes.
On September 30, 2009, Spirit completed an offering of $300.0 aggregate principal amount of its 2017 Notes. Both
the 2017 Notes and the 2020 Notes were sold to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended (the “Securities Act”), and outside the United States only to non-U.S. persons
pursuant to Regulation S promulgated under the Securities Act.
In connection with the initial sale of the 2017 Notes and the 2020 Notes, the Company entered into Registration
Rights Agreements with the initial purchasers of the 2017 Notes and the 2020 Notes, respectively, party thereto,
pursuant to which the Company, Spirit and the Subsidiary Guarantors (as defined below) agreed to file (x) a
registration statement with respect to an offer to exchange original 2017 Notes for a new issue of substantially
identical notes registered under the Securities Act (the “2017 Notes Exchange Offer”) and (y) a registration
statement with respect to an offer to exchange the original 2020 Notes for a new issue of substantially identical notes
registered under the Securities Act (the “2020 Notes Exchange Offer”). On March 29, 2010, Spirit and the
Subsidiary Guarantors (as defined below) filed Amendment No. 2 to a registration statement on Form S-4 (as so
amended, the “2017 Registration Statement”) with respect to the 2017 Notes Exchange Offer and on April 20, 2010,
the SEC declared the 2017 Registration Statement effective. The 2017 Notes Exchange Offer was commenced on
April 21, 2010 and was consummated on May 26, 2010. On December 10, 2010, Spirit and the Subsidiary
Guarantors filed a registration statement on Form S-4 (the “2020 Registration Statement”) with respect to the 2020
Notes Exchange Offer and on December 21, 2010, the SEC declared the 2020 Registration Statement effective. The
2020 Notes Exchange Offer was commenced on December 22, 2010 and was consummated on January 31, 2011.
The 2017 Notes and the 2020 Notes are fully and unconditionally guaranteed on a joint and several senior unsecured
basis by the Company and its wholly-owned domestic subsidiaries (the “Subsidiary Guarantors”).
The following condensed consolidating financial information, which has been prepared in accordance with the
requirements for presentation of Rule 3-10(d) of Regulation S-X promulgated under the Securities Act, presents the
condensed consolidating financial information separately for:
(i)
Spirit, as the subsidiary issuer of the 2017 Notes and the 2020 Notes;
(ii) The Subsidiary Guarantors, on a combined basis, as guarantors of the 2017 Notes and the 2020
Notes;
(iii) The Company’s subsidiaries, other than the Subsidiary Guarantors, which will not be guarantors of
the 2017 Notes and the 2020 Notes (the “Subsidiary Non-Guarantors”), on a combined basis;
(iv) Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany
transactions between or among Holdings, the Subsidiary Guarantors and the Subsidiary NonGuarantors, (b) eliminate the investments in the Company’s subsidiaries and (c) record consolidating
entries; and
(v) Holdings and its subsidiaries on a consolidated basis.
The Company, which is a guarantor of the 2017 Notes and the 2020 Notes, is excluded from the tables below as
it has no assets or operations independent from its subsidiaries.
126
Condensed Consolidating Statements of Operations
For the Twelve Months Ended December 31, 2010
Spirit
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Total
Net Revenues . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . .
Research and development. . . . . . . . . . . .
$3,741.1
$10.3
$511.6
$(90.6)
$4,172.4
3,232.8
133.2
49.0
6.2
3.1
—
459.5
19.7
2.5
(90.6)
—
—
3,607.9
156.0
51.5
Total operating costs and expenses . .
Operating income. . . . . . . . . . . . . . .
amortization . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . .
Income(loss) before income taxes and
equity in net loss of affiliates . . . . . .
Income tax benefit (provision) . . . . . . . . .
3,415.0
326.1
9.3
1.0
481.7
29.9
(90.6)
—
3,815.4
357.0
Income (loss) before equity in net loss
of affiliates . . . . . . . . . . . . . . . . . . .
Equity in net income (loss) of affiliates . .
Net income . . . . . . . . . . . . . . . . . . . . .
(58.3)
4.0
4.0
—
—
—
(4.5)
—
(4.4)
3.7
(3.7)
—
(59.1)
0.3
(0.4)
275.8
(75.2)
1.0
(0.4)
21.0
(2.6)
—
—
297.8
(78.2)
200.6
(0.1)
0.6
—
18.4
(0.6)
—
—
219.6
(0.7)
$ 200.5
$ 0.6
127
$ 17.8
$
—
$ 218.9
Spirit
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Total
Net Revenues . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . .
$3,609.1
$ 5.1
$519.7
$(55.4)
$4,078.5
3,150.3
119.1
54.5
4.6
0.9
—
482.3
17.1
2.2
(55.8)
—
—
3,581.4
137.1
56.7
Operating income (loss) . . . . . . . . . .
amortization . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . .
Income before income taxes and equity
in net loss of affiliates . . . . . . . . . . .
Income tax benefit (provision) . . . . . . . . .
3,323.9
285.2
5.5
(0.4)
501.6
18.1
(55.8)
0.4
3,775.2
303.3
(44.8)
10.1
3.5
1.6
—
—
(3.5)
—
2.6
3.1
(3.1)
—
(43.6)
7.0
6.1
254.0
(75.9)
1.2
(0.5)
17.2
(4.5)
0.4
—
272.8
(80.9)
Income before equity in net loss of
affiliates . . . . . . . . . . . . . . . . . . . . .
Equity in net income (loss) of affiliates . .
178.1
0.3
0.7
—
12.7
(0.5)
0.4
—
191.9
(0.2)
Net income . . . . . . . . . . . . . . . . . . . . .
$ 178.4
$ 0.7
128
$ 12.2
$ 0.4
$ 191.7
Spirit
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Total
Net Revenues . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . .
$3,248.2
$ —
$527.2
$(3.6)
$3,771.8
2,683.5
132.9
45.6
—
0.1
—
482.8
21.6
2.8
(3.1)
(0.1)
—
3,163.2
154.5
48.4
Operating income (loss) . . . . . . . . . .
amortization . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . .
2,862.0
386.2
0.1
(0.1)
507.2
20.0
(3.2)
(0.4)
3,366.1
405.7
Income (loss) before income taxes . . . .
Income tax provision . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . .
(39.0)
23.9
3.6
—
—
—
(5.8)
0.3
(4.8)
5.6
(5.6)
—
(39.2)
18.6
(1.2)
374.7
(115.6)
(0.1)
—
9.7
(2.9)
(0.4)
—
383.9
(118.5)
$ 259.1
$(0.1)
129
$ 6.8
$(0.4)
$ 265.4
Condensed Consolidating Balance Sheet
December 31, 2010
Spirit
Current assets
Cash and cash equivalents . . . . . . . . .
Investment in subsidiary . . . . . . . . . .
Inventory, net . . . . . . . . . . . . . . . . .
Prepaids . . . . . . . . . . . . . . . . . . . . .
Income tax receivable . . . . . . . . . . . .
Deferred tax asset-current . . . . . . . . .
Other current assets . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . .
Property, plant and equipment, net . . .
Pension assets . . . . . . . . . . . . . . . . .
Deferred tax asset — non-current, net .
Other assets. . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . .
.
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.
.
.
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Profit sharing/deferred compensation . . . . . . . . . . . .
Current portion of long-term debt . . . . . . . . . . . . . .
Advance payments, short-term . . . . . . . . . . . . . . . . .
Deferred revenue, short-term . . . . . . . . . . . . . . . . . .
Deferred grant income liability — current . . . . . . . . .
Income tax payable . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance payments, long-term . . . . . . . . . . . . . . . . .
Pension/OPEB obligation . . . . . . . . . . . . . . . . . . . .
Deferred grant income liability — non-current . . . . . .
Deferred revenue and other deferred credits . . . . . . .
Deferred tax liability — non-current . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity
Preferred stock, par value $0.01, 10,000,000 shares
authorized, no shares issued . . . . . . . . . . . . . . . . .
Common stock, Class A par value $0.01, 200,000,000
shares authorized, 107,201,314 shares issued . . . . .
Common stock, Class B par value $0.01, 150,000,000
shares authorized, 34,897,388 shares issued . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . .
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . .
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Total
. $ 416.1
.
180.6
.
279.9
.
2,368.0
.
9.1
.
45.9
.
46.7
.
—
.
3,346.3
.
1,018.0
.
169.5
.
55.0
.
285.4
. $4,874.2
$
—
6.6
—
15.9
—
—
—
—
22.5
302.0
—
—
80.0
$404.5
$ 65.5
96.4
—
124.0
0.8
—
0.9
1.6
289.2
150.0
2.9
—
34.7
$476.8
$
—
(83.4)
(279.9)
—
—
—
—
—
(363.3)
—
—
—
(290.2)
$(653.5)
$ 481.6
200.2
—
2,507.9
9.9
45.9
47.6
1.6
3,294.7
1,470.0
172.4
55.0
109.9
$5,102.0
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
$ 394.1
169.9
27.3
7.2
169.4
295.6
—
—
9.7
1,073.2
1,157.3
655.2
72.5
—
26.4
—
116.1
$ 14.4
—
—
—
—
—
3.9
—
—
18.3
80.0
—
—
94.2
—
—
—
$118.4
20.8
2.3
2.3
—
7.0
1.2
3.1
1.6
156.7
160.2
—
—
34.2
2.6
8.1
9.7
$ (83.4)
—
—
—
—
—
—
—
—
(83.4)
(210.2)
—
—
—
—
—
(80.0)
$ 443.5
190.7
29.6
9.5
169.4
302.6
5.1
3.1
11.3
1,164.8
1,187.3
655.2
72.5
128.4
29.0
8.1
45.8
.
—
—
—
—
—
.
1.1
—
—
—
1.1
.
.
.
.
.
.
.
.
0.3
983.6
(62.1)
850.6
1,773.5
—
1,773.5
$4,874.2
130
—
210.7
—
1.3
212.0
—
212.0
$404.5
—
69.2
(13.2)
48.8
104.8
0.5
105.3
$476.8
—
(279.9)
—
—
(279.9)
—
(279.9)
$(653.5)
0.3
983.6
(75.3)
900.7
1,810.4
0.5
1,810.9
$5,102.0
Condensed Consolidating Balance Sheet
December 31, 2009
Spirit
Current assets
Cash and cash equivalents . . . . . . . . .
Investment in subsidiary . . . . . . . . . .
Inventory, net . . . . . . . . . . . . . . . . . .
Prepaids . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable . . . . . . . . . . . .
Deferred tax asset-current . . . . . . . . .
Other current assets . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . .
Property, plant and equipment, net . . .
Pension assets . . . . . . . . . . . . . . . . . .
Deferred tax asset — non-current, net .
Other assets . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . .
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.
.
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . .
Profit sharing/deferred compensation . . . . . .
Current portion of long-term debt . . . . . . . . .
Advance payments, short-term . . . . . . . . . . .
Deferred revenue, short-term . . . . . . . . . . . .
Income tax payable . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . .
Advance payments, long-term . . . . . . . . . . .
Pension/OPEB obligation . . . . . . . . . . . . . . .
Deferred grant income liability . . . . . . . . . . .
Deferred revenue and other deferred credits .
Deferred tax liability — non-current . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity
Preferred stock, par value $0.01, 10,000,000
shares authorized, no shares issued . . . . . .
Common stock, Class A par value $0.01,
200,000,000 shares authorized,
105,064,561 shares issued . . . . . . . . . . . .
Common stock, Class B par value $0.01,
150,000,000 shares authorized,
35,669,740 shares issued . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . .
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Total
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$ 317.1
132.5
136.3
2,064.5
13.4
45.5
46.4
—
2,755.7
981.4
171.2
95.8
235.7
$4,239.8
$
—
5.2
—
0.1
—
—
—
—
5.3
163.4
—
—
80.0
$248.7
$ 51.9
92.5
—
142.3
0.8
—
9.4
1.1
298.0
134.5
—
—
25.9
$458.4
$
—
(69.8)
(136.3)
—
—
—
—
—
(206.1)
—
—
—
(267.0)
$(473.1)
$ 369.0
160.4
—
2,206.9
14.2
45.5
55.8
1.1
2,852.9
1,279.3
171.2
95.8
74.6
$4,473.8
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.
$ 360.9
149.8
2.3
9.1
237.4
90.7
—
17.4
867.6
860.8
727.5
62.5
—
46.0
—
125.9
$ 10.0
—
—
—
—
—
—
—
10.0
80.0
—
—
91.1
—
—
—
$140.2
12.1
1.3
—
—
16.4
3.4
1.0
174.4
130.9
—
0.1
38.2
—
15.6
6.2
$ (69.8)
—
—
—
—
—
—
—
(69.8)
(187.0)
—
—
—
—
—
(80.0)
$ 441.3
161.9
3.6
9.1
237.4
107.1
3.4
18.4
982.2
884.7
727.5
62.6
129.3
46.0
15.6
52.1
....
—
—
—
—
—
....
1.0
—
—
—
1.0
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.
.
0.4
949.8
(51.9)
650.2
1,549.5
—
1,549.5
$4,239.8
131
—
67.0
—
0.6
67.6
—
67.6
$248.7
—
69.2
(7.8)
31.1
92.5
0.5
93.0
$458.4
—
(136.2)
—
(0.1)
(136.3)
—
(136.3)
$(473.1)
0.4
949.8
(59.7)
681.8
1,573.3
0.5
1,573.8
$4,473.8
Condensed Consolidating Statements of Cash Flows
For the Year Ended December 31, 2010
activities . . . . . . . . . . . . . . . . . . . . . . .
Spirit
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
$ 124.6
$ (8.5)
$ 9.0
Consolidating
Adjustments
$
—
Total
$ 125.1
Investing activities
Purchase of property, plant and
equipment . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . .
Investment in subsidiary . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
(136.8)
0.2
(143.6)
—
(135.1)
—
—
—
(16.2)
0.3
—
(0.8)
—
—
143.6
—
(288.1)
0.5
—
(0.8)
Net cash provided by (used in)
investing activities . . . . . . . . . . . . . .
(280.2)
(135.1)
(16.7)
143.6
(288.4)
150.0
(150.0)
300.0
—
(9.6)
Financing activities
Proceeds from revolving credit facility . .
Payments on revolving credit facility . . . .
Proceeds from issuance of debt . . . . . . . .
Proceeds from governmental grants . . . . .
Principal payments of debt . . . . . . . . . . .
Collection on (repayment of)
intercompany debt. . . . . . . . . . . . . . . .
Proceeds from parent company
contribution . . . . . . . . . . . . . . . . . . . .
Debt issuance and financing costs . . . . . .
Excess tax benefits from share-based
payment arrangements . . . . . . . . . . . . .
150.0
(150.0)
300.0
—
(9.2)
—
—
—
—
—
—
—
—
—
(0.4)
—
—
—
—
—
(23.2)
—
23.2
—
—
(18.0)
143.6
—
—
—
5.0
—
—
financing activities . . . . . . . . . . . . .
254.6
143.6
22.8
Effect of exchange rate changes on cash
and cash equivalents . . . . . . . . . . . . . . . .
—
—
(1.5)
—
(143.6)
—
—
(143.6)
—
—
(18.0)
5.0
277.4
(1.5)
equivalents for the period . . . . . . . .
period . . . . . . . . . . . . . . . . . . . . . . . . . .
99.0
—
13.6
—
112.6
317.1
—
51.9
—
369.0
Cash and cash equivalents, end of period . .
$ 416.1
—
$ 65.5
—
$ 481.6
132
$
$
Spirit
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
activities . . . . . . . . . . . . . . . . . . . . . . .
$ (12.0)
$ 4.6
$ (6.5)
equipment . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of assets . . . . . . .
Long-term receivable . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
(148.1)
0.2
115.4
(61.2)
4.0
(65.8)
—
—
—
—
(89.7)
(65.8)
contribution . . . . . . . . . . . . . . . . . . . .
Consolidating
Adjustments
$
Total
—
$ (13.9)
(14.3)
—
—
—
(3.8)
—
—
—
61.2
—
(228.2)
0.2
115.4
—
0.2
(18.1)
61.2
(112.4)
300.0
(300.0)
300.3
0.7
(7.6)
300.0
(300.0)
293.4
—
(7.5)
—
—
—
—
—
—
—
6.9
0.7
(0.1)
—
—
—
—
—
(28.7)
—
28.7
—
—
(17.3)
61.2
—
—
—
(61.2)
—
—
(17.3)
239.9
61.2
36.2
(61.2)
276.1
—
—
2.7
—
2.7
—
period . . . . . . . . . . . . . . . . . . . . . . . . . .
138.2
—
14.3
—
152.5
178.9
—
37.6
—
216.5
$ 317.1
—
$ 51.9
—
$ 369.0
133
$
$
Net cash provided by operating
activities . . . . . . . . . . . . . . . . . . . . . . .
Spirit
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Total
$ 171.3
$ 0.7
$ 38.7
$ —
$ 210.7
equipment . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of assets . . . . . . .
Long-term receivable . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
(213.2)
1.9
116.1
(5.8)
(3.7)
(6.5)
—
—
—
—
(16.1)
—
—
—
1.7
—
—
—
5.8
—
(235.8)
1.9
116.1
—
(2.0)
(104.7)
(6.5)
(14.4)
5.8
(119.8)
175.0
(175.0)
—
13.7
(15.9)
—
—
—
—
—
—
—
10.3
2.2
—
—
—
—
—
—
175.0
(175.0)
10.3
15.9
(15.9)
10.7
—
(10.7)
—
—
—
(6.8)
5.8
—
—
—
(5.8)
—
—
(6.8)
1.7
5.8
1.8
(5.8)
3.5
—
—
(11.3)
—
(11.3)
contribution . . . . . . . . . . . . . . . . . . . .
period . . . . . . . . . . . . . . . . . . . . . . . . . .
68.3
—
14.8
—
83.1
110.6
—
22.8
—
133.4
$ 178.9
$ —
$ 37.6
$ —
$ 216.5
134
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our President and Chief Executive Officer and Senior Vice President and Chief Financial Officer have
evaluated our disclosure controls as of December 31, 2010 and have concluded that these disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to
provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time period
specified in the SEC rules and forms. These disclosure controls and procedures include, without limitation, controls
and procedures designed to provide reasonable assurance that information required to be disclosed by us in the
reports we file or submit is accumulated and communicated to management, including the President and Chief
Executive Officer and the Senior Vice President and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934. Internal
control over financial reporting provides reasonable assurance of the reliability of our financial statements for
external purposes in accordance with generally accepted accounting principles in the United States of America.
Internal control involves maintaining records that accurately represent our business transactions, providing
reasonable assurance that receipts and expenditures of company assets are made in accordance with management
authorization, and providing reasonable assurance that unauthorized acquisition, use or disposition of company
assets that could have a material effect on our financial statements would be detected or prevented on a timely basis.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatement. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls
may become inadequate because of changes in condition, or that the degree of compliance with the policies or
procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based
on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation under the framework in Internal Control —
Integrated Framework, our management concluded that our internal control over financial reporting was effective as
of December 31, 2010. The effectiveness of the Company’s internal control over financial reporting as of
December 31, 2010, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm as stated in their report which appears herein.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fourth quarter of
2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B. Other Information
None.
135
PART III
Item 10.
Director, Executive Officers and Corporate Governance
Information concerning the directors of Spirit Holdings, will be provided in Spirit Holdings’ proxy statement
for its 2011 annual meeting of stockholders, which will be filed with the SEC no later than 120 days after the end of
the fiscal year, and that information is hereby incorporated by reference.
Information concerning the executive officers of Spirit is included in Part I of this Annual Report on
Form 10-K.
Information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 will be
provided in Spirit Holdings’ proxy statement for its 2011 annual meeting of stockholders which will be filed with
the SEC no later than 120 days after the end of the fiscal year, and that information is hereby incorporated by
reference.
Information concerning Corporate Governance and the Board of Directors of Spirit Holdings will be provided
in Spirit Holdings’ proxy statement for its 2011 annual meeting of stockholders which will be filed with the SEC no
later than 120 days after the end of the fiscal year, and that information is hereby incorporated by reference.
The Company has adopted a Code of Ethics that applies to the Company’s Principal Executive Officer,
Principal Financial Officer, Principal Accounting Officer, and persons performing similar functions. A copy of the
Code of Ethics is available on the Company’s website at www.spiritaero.com under the “Investor Relations” link,
and any waiver from the Code of Ethics will be timely disclosed on the Company’s website or a Current Report on
Form 8-K, as will any amendments to the Code of Ethics.
Item 11.
Executive Compensation
Information concerning the compensation of directors and executive officers of Spirit Holdings, will be
provided in Spirit Holdings’ proxy statement for its 2011 annual meeting of stockholders, which will be filed with
reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information concerning the ownership of Spirit Holdings’ equity securities by certain beneficial owners and by
management will be provided in Spirit Holdings’ proxy statement for its 2011 annual meeting of stockholders,
which will be filed with the SEC no later than 120 days after the end of the fiscal year, and that information is hereby
incorporated by reference.
Equity Compensation Plan Information is included in Part II of this Annual Report.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Information concerning certain relationships and related transactions and director independence will be
provided in Spirit Holdings’ proxy statement for its 2011 annual meeting of stockholders, which will be filed with
reference.
Item 14.
Principal Accountant Fees and Services
Information concerning principal accounting fees and services will be provided in Spirit Holdings’ proxy
statement for its 2011 annual meeting of stockholders, which will be filed with the SEC no later than 120 days after
the end of the fiscal year, and that information is hereby incorporated by reference.
136
Part IV
Item 15.
Exhibits and Financial Statement Schedules
Article I. Exhibit
Number
2.1
2.2
3.1
3.2
Incorporated by
Reference to the
Following Documents
Section 1.01 Exhibit
Asset Purchase Agreement, dated as of
February 22, 2005, between Spirit
AeroSystems, Inc. (f/k/a Mid-Western
Aircraft Systems, Inc.) and The Boeing
Company
First Amendment to Asset Purchase
Agreement, dated June 15, 2005, between
Spirit AeroSystems, Inc. (f/k/a Mid-Western
Aircraft Systems, Inc.) and The Boeing
Company
Amended and Restated Certificate of
Incorporation of Spirit AeroSystems
Holdings, Inc.
Third Amended and Restated By Laws of
4.1
Form of Class A Common Stock Certificate
4.2
Form of Class B Common Stock Certificate
4.3
Investor Stockholders Agreement, dated
June 16, 2005, among Spirit AeroSystems
Holdings, Inc. (f/k/a Mid-Western Aircraft
Systems, Inc.), Onex Partners LP and the
stockholders listed on the signature pages
thereto
Registration Agreement, dated June 16,
2005, among Spirit AeroSystems Holdings,
Inc. (f/k/a Mid-Western Aircraft Systems,
Inc.) and the persons listed on Schedule A
thereto
Indenture dated as of September 30, 2009,
governing the 71⁄2% Senior Notes due 2017,
by and among Spirit AeroSystems, Inc., the
guarantors identified therein and The Bank
of New York Mellon Trust Company, N.A.
Form of 71⁄2% Senior Note due 2017
4.4
4.5
4.6
4.7
Registration Rights Agreement, dated as of
September 30, 2009, among Spirit
AeroSystems, Inc., the guarantors identified
therein, Banc of America Securities LLC
and the other initial purchasers of the Notes
named therein
137
Registration Statement on Form S-1 (File
No. 333-135486), filed June 30, 2006,
Exhibit 2.1
No. 333-135486), filed June 30, 2006,
Exhibit 2.2
Annual Report on Form 10-K (File
No. 001-33160), filed February 20, 2009,
Exhibit 3.1
Current Report on Form 8-K (File
No. 001-33160), filed May 3, 2010,
Exhibit 3.1
Amendment No. 5 to Registration Statement
on Form S-1/A (File No. 333-135486), filed
November 17, 2006, Exhibit 4.1
November 17, 2006, Exhibit 4.2
No. 333-135486), filed June 30, 2006,
Exhibit 4.3
No. 333-135486), filed June 30, 2006,
Exhibit 4.4
No. 001-33160), filed October 1, 2009,
Exhibit 4.1
No. 001-33160), filed October 1, 2009,
included as Exhibit A to Exhibit 4.1
No. 001-33160), filed October 1, 2009,
Exhibit 4.3
Article I. Exhibit
Number
4.8
4.9
4.10
4.11
10.1†
10.2†
10.3†
10.4†
10.5†
10.6†
10.7†
10.8†
10.9†
10.10†
Incorporated by
Reference to the
Following Documents
Indenture dated as of November 18, 2010,
governing the 63⁄4% Senior Notes due 2020,
by and among Spirit AeroSystems, Inc., the
guarantors identified therein and The Bank
of New York Mellon Trust Company, N.A.
Form of 63⁄4% Senior Note due 2020
Registration Rights Agreement, dated as of
November 18, 2010, among Spirit
AeroSystems, Inc., the guarantors identified
therein, Merrill Lynch, Pierce, Fenner &
Smith Incorporated on behalf of itself and as
representative of the several initial
purchasers of the notes named therein
Supplemental Indenture, dated as of
August 11, 2010
Employment Agreement, dated June 16,
2005, between Jeffrey L. Turner and Spirit
Aircraft Systems, Inc.)
Amendment to Employment Agreement
between Spirit AeroSystems, Inc. and
Jeffrey L. Turner, dated December 31, 2008
Employment Agreement, dated
September 13, 2005, between Spirit
AeroSystems, Inc. and H. David Walker
Employment Agreement, dated
December 28, 2005, between Spirit
AeroSystems, Inc. and John Lewelling
Employment Agreement, dated March 20,
2006, between Spirit AeroSystems (Europe)
Limited and Neil McManus
Employment Agreement between Spirit
AeroSystems, Inc. and Philip D. Anderson,
dated February 12, 2010
Spirit AeroSystems Holdings, Inc. Amended
and Restated Executive Incentive Plan
Spirit AeroSystems Holdings, Inc. (f/k/a
Mid-Western Aircraft Systems, Inc.)
Supplemental Executive Retirement Plan
Amendment to Spirit AeroSystems Holdings,
Inc. Supplemental Executive Retirement
Plan, dated July 30, 2007
Spirit AeroSystems Holdings, Inc. Amended
and Restated Short-Term Incentive Plan
138
No. 001-33160), filed November 18, 2010,
Exhibit 4.1
included as Exhibit A to Exhibit 4.2
Exhibit 4.3
Quarterly Report on Form 10-Q (File
Exhibit 4.1
No. 333-135486), filed June 30, 2006,
Exhibit 10.1
No. 001-33160), filed January 6, 2009,
Exhibit 10.1.1
No. 333-135486), filed June 30, 2006,
Exhibit 10.3
No. 333-135486), filed June 30, 2006,
Exhibit 10.4
No. 333-135486), filed June 30, 2006,
Exhibit 10.6
No. 001-33160), filed February 17, 2010,
Exhibit 10.1
No. 001-33160), filed October 31, 2008,
Exhibit 10.7
No. 333-135486), filed June 30, 2006,
Exhibit 10.8
No. 333-146112), filed September 17, 2007,
Exhibit 10.2
No. 333-150401), filed April 23, 2008,
Exhibit 99.1
Article I. Exhibit
Number
10.11†
10.12†
Incorporated by
Reference to the
Following Documents
Spirit AeroSystems Holdings, Inc. Second
Amended and Restated Long-Term Incentive
Plan
Spirit AeroSystems Holdings, Inc. Cash
Incentive Plan
10.13†
Spirit AeroSystems Holdings, Inc. Union
Equity Participation Program
10.14†
Spirit AeroSystems Holdings, Inc. Second
Amended and Restated Director Stock Plan
10.15
Form of Indemnification Agreement
10.16
Security Agreement, dated as of June 16,
2005, made by and among Spirit
Aircraft Systems, Inc.), Spirit AeroSystems
Systems Holdings, Inc.), Onex Wind Finance
LP, 3101447 Nova Scotia Company, Onex
Wind Finance LLC and Citicorp
North America, Inc., as collateral agent.
Security Agreement, dated as of June 16,
2005, made by and among Spirit
Aircraft Systems, Inc.), Spirit AeroSystems
Systems Holdings, Inc.), Spirit AeroSystems
Finance, Inc. (f/k/a Mid-Western Aircraft
Finance, Inc.), Onex Wind Finance LP,
3101447 Nova Scotia Company, Onex Wind
Finance LLC and The Boeing Company, as
agent.
Special Business Provisions (Sustaining),
dated as of June 16, 2005, between The
Boeing Company and Spirit AeroSystems,
Inc. (f/k/a Mid-Western Aircraft Systems,
Inc.)
General Terms Agreement (Sustaining and
others), dated as of June 16, 2005, between
The Boeing Company and Spirit
Hardware Material Services General Terms
Agreement, dated as of June 16, 2005,
between The Boeing Company and Spirit
10.17
10.18
10.19
10.20
139
No. 333-150401), filed April 23, 2008,
Exhibit 99.2
No. 333-135486), filed June 30, 2006,
Exhibit 10.11
October 30, 2006, Exhibit 10.12
No. 333-150402), filed April 23, 2008,
Exhibit 10.1
August 29, 2006, Exhibit 10.14
No. 333-135486), filed June 30, 2006,
Exhibit 10.20
No. 333-135486), filed June 30, 2006,
Exhibit 10.22
No. 333-135486), filed June 30, 2006,
Exhibit 10.23
No. 333-135486), filed June 30, 2006,
Exhibit 10.24
No. 333-135486), filed June 30, 2006,
Exhibit 10.25
Article I. Exhibit
Number
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30†
10.31†
10.32
Incorporated by
Reference to the
Following Documents
Ancillary Know-How Supplemental License
Agreement, dated as of June 16, 2005,
between The Boeing Company and Spirit
Sublease Agreement, dated as of June 16,
2005, among The Boeing Company, Boeing
IRB Asset Trust and Spirit AeroSystems, Inc.
(f/k/a Mid-Western Aircraft Systems, Inc.)
Second Amended and Restated Credit
Agreement, dated as of November 27, 2006
by and among Spirit AeroSystems, Inc.
(f/k/a Mid-Western Aircraft Systems, Inc.),
the guarantor party thereto, Citicorp
North America, Inc. and the other lenders
party thereto
Amendment No. 1 to Second Amended and
Restated Credit Agreement, dated as of
March 18, 2008
Inducement Agreement between Spirit
AeroSystems, Inc. and The North Carolina
Global TransPark Authority, dated May 14,
2008
Lease Agreement between Spirit
AeroSystems, Inc. and The North Carolina
Global TransPark Authority, dated May 14,
2008.
Construction Agency Agreement between
Spirit AeroSystems, Inc. and The
North Carolina Global TransPark Authority,
dated May 14, 2008
Amendment No. 2, dated June 8, 2009, to
Second Amended and Restated Credit
Agreement
Amendment No. 3, dated October 15, 2010,
to Second Amended and Restated Credit
Agreement
Amendment to the Spirit AeroSystems
Holdings, Inc. Amended and Restated
Executive Incentive Plan.
Employment Agreement between Spirit
AeroSystems, Inc. and Michelle Russell,
effective as of June 1, 2010.
Amendment No. 3 dated as of October 15,
2010, to the Second Amended and Restated
Credit Agreement, dated as of November 27,
2006, among Spirit AeroSystems, Inc. (f/k/a
Mid-Western Aircraft Systems, Inc.), Spirit
AeroSystems Holdings, Inc. (f/k/a MidWestern Aircraft Systems Holdings, Inc.), the
guarantors party thereto; Bank of America,
N.A. and the other lenders party thereto.
140
No. 333-135486), filed June 30, 2006,
Exhibit 10.26
No. 333-135486), filed June 30, 2006,
Exhibit 10.27
No. 001-33160), filed December 1, 2006,
Exhibit 10.2
No. 001-33160), filed March 19, 2008,
Exhibit 10.1
No. 001-33160), filed August 1, 2008,
Exhibit 10.2
No. 001-33160), filed August 1, 2008,
Exhibit 10.3
No. 001-33160), filed August 1, 2008,
Exhibit 10.4
No. 001-33160), filed June 10, 2009,
Exhibit 10.1
No. 001-33160), filed October 20, 2010,
Exhibit 10.1
No. 001-33160), filed May 6, 2010,
Exhibit 10.1
No. 001-33160), filed August 6, 2010,
Exhibit 10.1
No. 001-33160), filed October 20, 2010,
Exhibit 10.1
Article I. Exhibit
Number
12.1
14.1
21.1
23.1
31.1
31.2
32.1
32.2
101.INS@
101.SCH@
101.CAL@
101.DEF@
101.LAB@
101.PRE@
Incorporated by
Reference to the
Following Documents
Ratio of Earnings to Fixed Charges
Code of Ethics
*
Annual Report on Form 10-K (File
No. 001-33160), filed March 5, 2007,
Exhibit 14.1
(i) Spirit Code of Conduct
(ii) Spirit Finance Code of Professional
Conduct
Subsidiaries of Spirit AeroSystems Holdings,
Inc.
Consent of PricewaterhouseCoopers LLP
Certification of Chief Executive Officer
pursuant to Section 302 of Sarbanes-Oxley
Act of 2002.
Certification of Chief Financial Officer
Act of 2002.
Certification of Chief Executive Officer
Act of 2002.
Certification of Chief Financial Officer
Act of 2002.
XBRL Instance Document
XBRL Taxonomy Extension Schema
Document.
XBRL Taxonomy Extension Calculation
Linkbase Document.
XBRL Taxonomy Extension Definition
Linkbase Document.
XBRL Taxonomy Extension Label Linkbase
Document.
XBRL Taxonomy Extension Presentation
Linkbase Document.
*
*
*
*
**
**
**
**
**
**
**
**
† Indicates management contract or compensation plan or arrangement
* Filed herewith
** Furnished herewith
141
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of
Wichita, State of Kansas on February 22, 2011.
SPIRIT AEROSYSTEMS HOLDINGS, INC.
By:
/s/
Philip D. Anderson
Philip D. Anderson
Senior Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons
in the capacities and on the dates indicated.
Signature
/s/
/s/
/s/
/s/
/s/
/s/
/s/
/s/
/s/
/s/
/s/
/s/
Jeffrey L. Turner
Jeffrey L. Turner
Philip D. Anderson
Philip D. Anderson
James Steven Sharp
James Steven Sharp
Ivor Evans
Ivor Evans
Paul Fulchino
Paul Fulchino
Ronald Kadish
Ronald Kadish
Francis Raborn
Francis Raborn
Tawfiq Popatia
Tawfiq Popatia
Charles Chadwell
Charles Chadwell
Richard Gephardt
Richard Gephardt
Robert Johnson
Robert Johnson
James Welch
James Welch
Title
Date
Director, President and Chief Executive
Officer (Principal Executive Officer)
February 22, 2011
Senior Vice President and Chief Financial
Officer (Principal Financial Officer)
February 22, 2011
Corporate Controller and Treasurer
(Principal Accounting Officer)
February 22, 2011
Director
February 22, 2011
Director
February 22, 2011
Director
February 22, 2011
Director
February 22, 2011
Director
February 22, 2011
Director
February 22, 2011
Director
February 22, 2011
Director, Chairman of the Board
February 22, 2011
Director
February 22, 2011
142
SCHEDULE II — Valuation and Qualifying Accounts
Allowance for Doubtful Accounts, Warranties and Extraordinary Rework, and Deferred Tax Asset Valuation
(Deducted from assets to which they apply)
Allowance for Doubtful Accounts
2010
2009
2008
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges to costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs, net of recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.1
—
(0.1)
—
$0.1
—
—
—
$ 1.3
0.1
(1.1)
(0.2)
Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
$0.1
$ 0.1
Warranties and Extraordinary Rework
2010
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . .
Charges to costs and expenses . . . . . . . . . . . . . . .
Write-offs, net of recoveries . . . . . . . . . . . . . . . .
Exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . $13.1
...................
7.0
...................
(1.3)
...................
(0.1)
Balance, December 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18.7
Deferred Tax Asset Valuation Allowance
Balance, January 1 . . . . . . . . . . . . . . . . . . .
Income Tax credits . . . . . . . . . . . . . . . . . . .
Decreases . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31 . . . . . . . . . . . . . . . .
..........................
..........................
..........................
..........................
II-1
2009
2008
$ 6.5
7.0
(0.7)
0.3
$ 9.9
0.4
(2.9)
(0.9)
$13.1
$ 6.5
2010
2009
2008
$—
5.3
—
$5.3
$—
—
—
$—
$—
—
—
$—
[This Page Intentionally Left Blank]
[This Page Intentionally Left Blank]
Stock Performance
The information contained in this “Stock Performance” section of the 2010 Annual Report is not part of the Spirit
AeroSystems Holdings, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and shall not
deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission. Such information shall
not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934 except to the extent that Spirit specifically incorporates such information.
The following graph shows a comparison from November 21, 2006 (the date our class A common stock commenced
trading on The New York Stock Exchange) through December 31, 2010 of cumulative total return of our class A common
stock, Standard & Poor’s 500 Stock Index, and the Standard & Poor’s 500 Aerospace & Defense Index. Such returns are
based on historical results and are not intended to suggest future performance. We have never paid dividends on our
class A stock and have no present plans to do so.
Company / Index
S&P 500 Index
S&P 500 Aerospace & Defense
Index
Base
Period
11/21/06
100
100
100
INDEXED RETURNS
Years Ending
12/31/06
128.73
101.25
12/31/07
132.69
106.81
12/31/08
39.12
67.29
12/31/09
76.38
85.10
12/31/10
80.04
97.92
99.98
119.30
75.71
94.36
108.62
Corporate/Shareholder Information
Transfer Agent/Registrar
Investor Relations
Communications regarding transfer requirements, lost
stock certificates, address changes, or stock accounts
should be directed to:
General inquiries from investors or correspondence
concerning Spirit AeroSystems investor communica
tions may be directed by phone, letter, or e-mail to:
BNY Mellon Shareowner Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
(877) 296-3711
(201) 680-6685
www.bnymellon.com/shareowner/equityaccess
E-mail: [email protected]
Alan Hermanson
Spirit AeroSystems, Inc.
P.O. Box 780008
MC K16-66
Wichita, KS 67278
(316) 523-7040
e-mail: [email protected]
Independent Registered Public Accounting Firm
Stock Symbol
800 Market Street
St. Louis, MO 63101
(314) 206-8500
SPR
SEC Reports
Annual Meeting
Spirit’s Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K
and other information, as filed with the U.S. Securities
and Exchange Commission, are available free of
charge to any interested party at www.spiritaero.com
or at www.sec.gov.
11:00 a.m. (ET), Tuesday, May 3, 2011
Hyatt Regency Reston
Lake Thoreau Room
1800 Presidents Street
Reston, VA 20190
Stock Listed and Traded
New York Stock Exchange
3801 South Oliver
Wichita, KS 67210
(316) 526-9000
(800) 501-7597
www.spiritaero.com
SFI COC A VC
Copyright © 2011 Spirit AeroSystems, Inc. All rights reserved.
Design: Graphic Solutions Editor/Writer: Cathy J. Klusman Production: Grapheon Printing: RR Donnelley
3801 South Oliver
Wichita, KS 67210
(316) 526-9000
(800) 501-7597
www.spiritaero.com

2010 Annual Report - Investor Relations Solutions

Transcription

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